ILX RESORTS INC - 10-K Annual Report

Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934

For the fiscal year ended December 31, 1998

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Act
of 1934

For the transition period from _______________ to _______________

Commission File Number 001-13855

ILX RESORTS INCORPORATED

ARIZONA 86-0564171
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

2111 East Highland Avenue, Suite 210, Phoenix, AZ 85016

Registrant's telephone number, including area code (602) 957-2777

Securities registered pursuant to Section 12(b) of the Act:

Name of each Exchange
Title of Class on which registered
-------------- -------------------
Common Stock, without par value American Stock Exchange, Inc.

Securities registered pursuant to Section 12 (g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate the number of shares outstanding of each of the Registrant's classes of
stock, as of the latest practicable date.

Class Outstanding at February 28, 1999
- ------------------------------- --------------------------------
Common Stock, without par value 4,028,393 shares

At February 28, 1999, the aggregate market value of Registrant's common shares
held by non-affiliates, based upon the closing bid price at which such stock was
sold, was approximately $4.2 million.

Portions of Registrant's definitive Proxy Statement relating to the 1999 Annual
Meeting of Shareholders have been incorporated by reference into Part III, Items
10, 11, 12 and 13.

ILX RESORTS INCORPORATED

1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS

PART I 3
- --------------------------------------------------------------------------------

ITEMS 1 AND 2. BUSINESS AND PROPERTIES 3

ITEM 3. LEGAL PROCEEDINGS 16

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16

PART II 17
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 17

ITEM 6. SELECTED FINANCIAL DATA 17

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 17

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 23

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 23

PART III 25
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 25

ITEM 11. EXECUTIVE COMPENSATION 25

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 25

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 25

PART IV 26

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 26

PART I

This Form 10-K contains certain "forward-looking statements," including
statements regarding, among other items, the Company's growth strategy, industry
and demographic trends, the Company's ability to finance its operations and
anticipated trends in its business. Actual results could differ materially from
these forward-looking statements as a result of a number of factors, including,
but not limited to, the Company's need for additional financing, intense
competition in various aspects of its business, the risks of rapid growth, its
dependence on key personnel and other factors discussed in the Company's public
filings with the Securities and Exchange Commission.

ITEMS 1 AND 2. BUSINESS AND PROPERTIES

THE COMPANY

ILX Resorts Incorporated ("ILX" or the "Company") is one of the leading
developers, marketers and operators of timeshare resorts in the western United
States. The Company's principal operations consist of (i) acquiring, developing
and operating timeshare resorts, marketed by the Company as vacation ownership
resorts, (ii) marketing and selling vacation ownership interests in the
timeshare resorts, which typically have entitled the buyers thereof to ownership
of a fully-furnished unit for a one-week period on either an annual or an
alternate year (i.e., biennial) basis ("Vacation Ownership Interests"), and
(iii) providing purchase money financing to the buyers of Vacation Ownership
Interests at its resorts. In addition, the Company receives revenues from the
rental of its unused or unsold inventory of units at its vacation ownership
resorts, and from the sale of food, beverages and other services at such
resorts. The Company's current portfolio of resorts consists of five resorts in
Arizona, one in Indiana, and one in Colorado, (collectively, the "ILX Resorts").
At December 31, 1998, the ILX Resorts represented an aggregate of 451 units and
24,791 sold and unsold one-week Vacation Ownership Interests, including 1,500
one-week 25-year right-to-use Vacation Ownership Interests currently under
construction in San Carlos, Mexico. The Company also markets additional
interests, which consisted, at December 31, 1998, of an aggregate of
approximately 78 Vacation Ownership Interests in destination resorts owned by
others and located in Florida, Mexico and elsewhere (collectively, the
"Additional Interests").

The Company was founded in 1986 and commenced implementation of its
current operating and growth strategies in the fourth quarter of 1991. During
the period from December 31, 1991 through December 31, 1998, the Company
increased the number of ILX Resorts from two to seven, and increased its total
inventory of sold and unsold Vacation Ownership Interests from 9,915 weeks to
24,869 weeks (including 1,500 under construction in San Carlos and the
Additional Interests). The Company's total revenues increased from $6.1 million
in 1991 to $36.7 million in 1998. During this period, the Company's growth was
fueled principally by the acquisition, redevelopment and expansion of certain
ILX Resorts and the marketing and sale of Vacation Ownership Interests in these
resorts.

The Company believes it was able to purchase the ILX Resorts and the
Additional Interests at relatively attractive prices because of its skill in
locating, identifying and acquiring distressed or underdeveloped resorts and
Vacation Ownership Interests. The Company successfully utilized this strategy in
connection with Los Abrigados in Sedona, Arizona (175 units), the Kohl's Ranch
Lodge in Payson, Arizona (52 units) the Roundhouse Resort in Pinetop/Lakeside,
Arizona (59 existing units owned by current owners of Vacation Ownership
Interests and planned expansion of a minimum of 20 units), and the 1,500
Vacation Ownership Interests currently under construction in San Carlos, Mexico.

Utilizing management's development expertise, the Company developed and
implemented the Varsity Clubs concept. This concept entails ground-up
development of urban vacation ownership properties strategically situated in
tourist destinations that are accessible to major population centers near
prominent colleges and universities. The first Varsity Club, VCA-South Bend,
consisting of 62 units, was completed in August 1995 and is located
approximately three miles from the University of Notre Dame in South Bend,
Indiana. The second Varsity Club, VCA-Tucson, consisting of 60 units, was
completed in July 1998 and is located approximately three miles from the
University of Arizona in Tucson, Arizona. The scope of the Company's activities
since 1991 have enabled the Company's management team, which has significant
experience in the vacation ownership resort and real estate development
industries, to establish substantial in-house capabilities in areas critical to
the Company's operating and growth strategies, including property identification
and acquisition, property development and rehabilitation, and Vacation Ownership
Interest sales and marketing.

The Company is pursuing a two-pronged operating strategy which focuses
on marketing Vacation Ownership Interests in the Company's convenient access
resorts ("CARs") and in its Varsity Clubs. CARs are typically high-quality
vacation ownership resorts situated in settings of natural beauty and located
within convenient and inexpensive travelling distance from major population
centers (currently Phoenix, Tucson and Denver). The Company's CARs are intended
to facilitate more frequent "short-stay" getaways, which the Company believes is
an increasingly popular vacation trend. To the extent Varsity Clubs resorts are

3

located proximate to major population centers, such resorts may also be CARs. As
of December 31, 1998, the Company operated six resorts consisting of 392 units
and held 8,500 unsold Vacation Ownership Interests in those resorts. The
Roundhouse Resort and the San Carlos Plaza Resort are operated by third parties
not affiliated with the Company. The Company's inventory of CARs has been
marketed primarily by ILX employees at the Company's on-site sales offices
located at or near selected ILX Resorts.

Historically the Company has primarily marketed Vacation Ownership
Interests in individual ILX Resorts. Commencing in June 1998, the Company began
marketing some of its inventory of CARs through membership interests in its
proprietary branded Premiere Vacation Club. The Premiere Vacation Club offers
purchasers a deeded one-week membership interest which may be used at any time
between certain specified dates at any one of the ILX Resorts included in the
Premiere Vacation Club, or may be split into multiple stays of shorter duration
at any combination of such Resorts. Vacation Ownership Interests in individual
ILX Resorts and in Premiere Vacation Club may be exchanged for a stay at other
resorts through the major national exchange networks in which ILX Owners may
participate, such as Resort Condominiums International ("RCI") and Interval
International ("II"). The vast majority of the Company's inventory of Vacation
Ownership Interests, including those at its Varsity Clubs and those included in
the Premiere Vacation Club, qualify as "red time," the highest demand
classification for purposes of participation in such exchange networks. The
Company designed the Premiere Vacation Club to respond to customer preferences
for flexible use options (e.g., floating days, two-day uses and the ability to
split a purchased membership interest), locations within convenient driving
distances from major metropolitan areas and other features (e.g., high quality
amenities and food and beverage discounts at its participating ILX Resorts).

In addition to marketing through its Premiere Vacation Club, the
Company intends to pursue the expansion of its proprietary branded Varsity Club
concept. The Company will focus on development of additional Varsity Clubs in
areas with a significant base of existing tourism and access to major population
centers, which are located near prominent colleges and universities in the
western United States. The Company completed construction and commenced
operations of its prototype Varsity Club property, VCA-South Bend, located near
the University of Notre Dame, in 1995 and its second Varsity Club, VCA-Tucson,
located near the University of Arizona in Tucson, Arizona, in July 1998. The
Company intends to develop its Varsity Club properties at attractive locations
for visiting tourists who may rent accommodations or purchase a Vacation
Ownership Interest from the Company. In connection with the purchase of a
Vacation Ownership Interest, Varsity Clubs offer area residents an urban "city
club" experience with unlimited day-use privileges, as well as the opportunity
to participate in the II Vacation Ownership Interest exchange network. The
Company believes that Varsity Clubs offer features common to a "city club",
including a fitness center, swimming pool, bar, restaurant/ lounge, billiards
and large sitting/welcome room. In addition, the Varsity Clubs concept enables
the Company to enlarge the Company's target list of potential purchasers by
utilizing an identification with the local university to market Vacation
Ownership Interests to alumni, sports season ticket holders, parents of
university students and corporate sponsors of university events, among others,
who attend the sporting, academic and cultural events regularly hosted by
various universities, thereby enlarging the Company's target base of potential
purchasers. Varsity Clubs offer a flexible ownership structure which permits the
purchase of Vacation Ownership Interests consisting of a single day, a
collection of single days (such as selected days during an entire specified
sports season) or a traditional one-week period, in addition to unlimited use of
the common areas for "city club" use. The Company believes that direct marketing
to a large target base of potential purchasers with university affiliations will
enable the Company to achieve premium pricing with respect to those portions of
its inventory which coincide with high demand for accommodations at prominent
university-sponsored events. The Company also believes that its success in
gaining access to alumni and other target potential purchasers with
relationships to the University of Notre Dame or the University of Arizona may
facilitate similar arrangements with other universities in the areas in which
future Varsity Clubs are developed.

During 1998, the Company sold 2,303 annual and biennial Vacation
Ownership Interests at the ILX Resorts, compared to 2,512 and 2,320 during 1997
and 1996, respectively. The average sales price for a Vacation Ownership
Interest (excluding sales of Upgrades) was $11,444 for an annual interest and
$6,899 for a biennial interest, resulting in a weighted average price of $12,656
(each biennial interest is treated as one-half of an annual interest) during the
year ended December 31, 1997 and $12,123 for an annual interest and $6,867 for a
biennial interest, resulting in a weighted average price of $13,013 during the
year ended December 31, 1998. At December 31, 1998, the Company had an existing
inventory of 10,184 unsold Vacation Ownership Interests (including the
Additional Interests and the 1,500 San Carlos Vacation Ownership Interests) and
a master plan, subject to consumer demand, receipt of applicable permits and
other contingencies generally applicable to real estate development, to
construct up to 6,134 additional Vacation Ownership Interests through 2000 and
thereafter at the existing ILX Resorts.

4

THE RESORTS

The table below sets forth certain information, as of December 31,
1998, with respect to the ILX Resorts. The information set forth below does not
include the Company's planned expansion of the ILX Resorts or development of
additional Varsity Clubs and CARs. As described in Note 9 of the Notes to
Consolidated Financial Statements, all of the Company's resorts except the
Golden Eagle and Roundhouse Resorts are encumbered by one or more deeds of
trust.

SIZE OF
UNITS(3) RESORT AMENITIES
-------- --------------------------------------------------------
RESTAURANT/ WHIRLPOOL/ SWIMMING FITNESS LOCAL
RESORTS(L)(2) LOCATION S 1BR 2BR LOUNGE SPA POOL CENTER AMENITIES(4)
- ------------- -------- - --- --- ------ --- ---- ------ ------------

CONVENIENT ACCESS RESORTS
Los Abrigados Resort & Spa Sedona, AZ 158 17 4/1 Y Y-2 Y B,BB,BL,
D,F,FW,G,
H,MT,Sh,
T,TH,V

The Inn at Los Abrigados Sedona, AZ 9 1 4/1 Y Y-2 Y B,BB,BL,
D,F,FW,G,
H,MT,Sh,
T,TH,V
Kohl's Ranch Lodge Payson, AZ 42 4 6 1/2 Y Y Y
B,BB,C,D,
F,FW,G,H,
Sh,TH,V
Roundhouse Resort Pinetop/
Lakeside, AZ 19 30 10 1/1 Y Y Y C,D,FW,G,
H,MT,SH,SS,
TH
Golden Eagle Resort Estes Park, CO 9 21 3 1/1 Y Y N
BL,D,F,
FW,G,H,
-- --- -- Sh,TH
TOTAL CARS 79 213 37
VARSITY CLUBS OF AMERICA
VCA - South Bend South Bend, IN 3 54 5 1/1 Y Y Y B,BB,BL,
D,G,M,
MT,Sh,UC

VCA - Tucson Tucson, AZ 4 44 12 1/1 Y Y Y BL,D,G,M,
MT,Sh,T,TH
-- --- -- UC
TOTAL VARSITY CLUBS(5) 7 98 17
-- --- --
Total 86 311 54
== === ==

- ----------
(1) Information regarding the 1,500 San Carlos Vacation Ownership Interests (of
which approximately half are one-bedroom and half are two-bedroom units)
has not been included in the following chart because such Vacation
Ownership Interests are currently under construction. Until construction is
complete, Premiere Vacation Club members may utilize the accommodations and
amenities at the full-service resort adjacent to the property. Following
construction, Premiere Vacation Club members will continue to be able to
utilize the adjacent resort amenities, as well as the amenities of the new
construction, which includes three full-service restaurants and a lounge,
two swimming pools, a whirlpool spa and the fitness center. The following
amenities are also available locally: (4) BO, D, F, G, H, Sh, T and W.
(2) Information regarding the Additional Interests has not been included in the
following chart, as the Company only owns a number of, or has rights to
market, Vacation Ownership Interests at such resorts and, except for the
106 Vacation Ownership Interests in the Roundhouse Resort, does not own any
of such resorts.
(3) "S" indicates studio unit; "1 BR" indicates one-bedroom unit; "2 BR"
indicates two-bedroom unit. Units with the same number of bedrooms may vary
in size and amenities.
(4) B - Basketball, BB - Bocce Ball, BL - Billiard, BO - Boating, C - Casino, D
- Dining, F - Fishing, FW - Four Wheel Tours, G - Golf, H - Horseback
Riding, M - Museums, MT - Movie Theater, Sh - Shopping, SS - Snow Skiing, T
- Tennis, TH - Trail Hiking, UC - University Campus, V - Volleyball, W -
Watersports.
(5) To the extent Varsity Clubs are proximate to major metropolitan areas, such
resorts can also be considered CARs, but have not been so designated in the
chart.

5

DESCRIPTION OF ILX RESORTS

CONVENIENT ACCESS RESORTS

LOS ABRIGADOS RESORT & SPA. Los Abrigados is located in Sedona,
Arizona, approximately 110 miles from Phoenix, Arizona. This resort consists of
175 units situated on approximately 20 acres of lush landscaping and
Spanish-styled plazas, winding walkways and bridges. Los Abrigados offers one-
and two-bedroom units, each with a separate living area, bedroom, mini-kitchen
and balcony or patio. Twenty suites offer a fireplace and whirlpool spa as well.
Nine units offer full kitchenettes. Los Abrigados Resort is designed in
southwestern decor and is surrounded by the dramatic red rocks of Oak Creek
Canyon. This resort has an onsite sales office.

Amenities at the resort include four restaurants and a sports bar,
billiards emporium, library, two pools, tennis courts, sports court, basketball
court, bocce ball courts, fitness center and health spa offering a variety of
personal care services, aerobic and yoga classes, whirlpools, steam and sauna
rooms, hydrotherapy and other personal care facilities. In addition, golf,
horseback riding, jeep, helicopter and hot air balloon rides, and other outdoor
activities are easily accessible. Los Abrigados is an II Five-Star resort.

As of December 31, 1998, Los Abrigados contained 9,100 Vacation
Ownership Interests, of which 787 remained available for sale (excluding 1,035
Vacation Ownership Interests owned by Premiere Vacation Club). The Company
believes there exist additional expansion opportunities at and contiguous to Los
Abrigados including 20 units on the present site (representing 1,040 Vacation
Ownership Interests). The Company is currently exploring this and other
expansion possibilities in conjunction with opportunities of an adjacent site;
however, no contracts, rights or commitments exist with respect to any of such
opportunities.

THE INN AT LOS ABRIGADOS. The Inn at Los Abrigados is located in
Sedona, Arizona, approximately 110 miles from Phoenix, Arizona. This resort
consists of ten units adjacent to Los Abrigados. The Inn at Los Abrigados
includes the main Morris House and nine bed and breakfast-style units in three
buildings situated amidst a former apple orchard. The Morris House is a
multi-level luxury suite sleeping six, and features a sunken living room, full
kitchen with dining area, a loft, two full bathrooms and a private backyard with
patio and barbecue. The bed and breakfast-style units each feature king beds, a
sitting area, microwave, refrigerator, coffee maker, full bath with shower and
balcony or patio. Guests of the Inn at Los Abrigados have charge privileges at
and full use of all Los Abrigados amenities. The Inn at Los Abrigados is an II
Five-Star resort.

The Company acquired the Inn at Los Abrigados in September 1996 and
completed improvements at this resort in the fourth quarter of 1997. As of
December 31, 1998, the Inn at Los Abrigados contained 510 Vacation Ownership
Interests, of which approximately 192 remained available for sale (excluding 265
Vacation Ownership Interests owned by Premiere Vacation Club).

KOHL'S RANCH LODGE. Kohl's Ranch is a 10.5-acre property located 17
miles northeast of Payson, Arizona and approximately 105 miles from Phoenix,
Arizona. It is bordered on the eastern side by Tonto Creek and is surrounded by
the Tonto National Forest, which is believed to be the largest stand of
Ponderosa Pines in the world. Kohl's Ranch consists of 52 units. Forty-one of
the units are at the main lodge, 8 units consist of one-and two-bedroom cabins
along Tonto Creek, and three units are part of a triplex cabin. This resort also
has an on-site sales office.

Kohl's Ranch offers a variety of common area amenities including an
outdoor heated pool, outdoor whirlpool spa, exercise room, putting green, bocce
ball court, children's playground and gazebos and sport court. Kohl's Ranch also
includes a freestanding building that contains food and beverage facilities, a
gift shop and space for additional retail and other operations. Each unit at the
resort offers a mini-kitchenette or full kitchen, and many have a fireplace. In
addition, Kohl's Ranch offers a unique pet resort. Kohl's Ranch is an RCI
resort.

As of December 31, 1998, Kohl's Ranch contained 2,704 Vacation
Ownership Interests, of which approximately 633 were available for sale
(excluding 1,315 Vacation Ownership Interests owned by Premiere Vacation Club).
In addition, the Company has expansion capabilities at Kohl's Ranch for 12
additional two-bedroom creekside cabin units (624 one-week Vacation Ownership
Interests), on which it began development in 1998 and expects to complete in
1999.

ROUNDHOUSE RESORT. The Roundhouse Resort is located on 9.5 acres in the
White Mountains of Northeastern Arizona, approximately 190 miles from Phoenix,
Arizona. Roundhouse Resort currently consists of 59 units, all of which existed
prior to the Company's acquisition of the development rights at this resort.

6

Amenities at the Roundhouse Resort include a restaurant and lounge
which the Company will begin operating in the summer of 1999, recreation center
with indoor pool, racquetball and basketball courts. In addition, the resort is
proximate to golf courses, skiing, horseback riding, hiking and other outdoor
activities. At an elevation of 7,200 feet, the Roundhouse Resort is set in a
location that offers four seasons, a distinct contrast to Arizona's arid
lowlands. Roundhouse Resort is an RCI resort.

As of December 31, 1997, the Roundhouse Resort contained 2,950 one-week
Vacation Ownership Interests, all of which were sold by the previous owners of
this resort. As of December 31, 1998, the Company holds 106 Vacation Ownership
Interests in the Roundhouse Resort, which it acquired during 1998. The Company
intends to market these Vacation Ownership Interests through Premiere Vacation
Club. The Company intends to expand this resort through the construction of up
to 60 additional units (representing up to 3,120 Vacation Ownership Interests),
commencing with an initial phase of 20 units (representing 1,040 Vacation
Ownership Interests). The 20-unit expansion is currently in the planning stages
and construction is expected in 2000.

GOLDEN EAGLE RESORT. The Golden Eagle Resort is a four-acre property
located in the town of Estes Park, Colorado, within three miles of Rocky
Mountain National Park and approximately 70 miles from Denver, Colorado. This
resort consists of 33 total units and is bounded generally by undeveloped
forested mountainside land, which provides excellent mountain views from the
resort.

The Golden Eagle Resort is centered around the historic Crag's Lodge, a
four-story wood frame building constructed in the early 1900s, which is listed
on the National Registry of Historic Places by the United States Department of
the Interior, and serves as the resort's main lodge. Amenities offered at this
resort include a restaurant, bar and library, as well as two other freestanding
buildings containing six guest rooms and support facilities. Each unit at Golden
Eagle features a fully equipped kitchenette, living and dining areas, television
and video cassette player. Additional amenities at this resort include a heated
pool and spa as well as local outdoor attractions. Golden Eagle Resort is an RCI
resort.

As of December 31, 1998, the Golden Eagle Resort contained 1,683
one-week Vacation Ownership Interests, of which 298 were available for sale
(excluding 565 Vacation Ownership Interests owned by Premiere Vacation Club). In
addition, the Company owns one unit in a residential duplex adjacent to the
property, which is not currently available for sales of Vacation Ownership
Interests. The Company intends to construct two additional units in the future,
which would yield an additional 102 Vacation Ownership Interests.

VARSITY CLUBS OF AMERICA

VCA-SOUTH BEND. The Company's first Varsity Clubs facility is an
approximately four acre property located approximately three miles from the
University of Notre Dame and Notre Dame Stadium in South Bend, Indiana, which is
90 miles from Chicago, Illinois. VCA-South Bend offers a total of 62 units,
consisting of studio, one- and two-bedroom suites. This resort has an onsite
sales office.

Each one- and two-bedroom suite at VCA-South Bend includes a king
master bedroom, living room with sofa sleeper, kitchenette and whirlpool spa as
well as color television with premium movie channels. Common areas at the resort
include the Stadium Sports Lounge, featuring a theater-wall television in a
stadium-type setting, fitness center with whirlpool spa, indoor/outdoor heated
pool, bocce ball, children's playground, billiards room, library, gift shop,
business center and special events facilities. The Company intends VCA-South
Bend to serve as a prototype, subject to modifications and improvements, for the
expansion of the Company's Varsity Clubs concept to other suitable locations,
with additional modifications made as appropriate to suit local tastes and
preferences. VCA-South Bend is an II Five-Star resort.

As of December 31, 1998, this resort contained 3,224 one-week Vacation
Ownership Interests, of which approximately 708 were available for sale
(excluding 695 Vacation Ownership Interests owned by Premiere Vacation Club).
Expansion capability exists for an additional 24 units (1,248 one-week Vacation
Ownership Interests). Construction of such additional units is not anticipated
prior to 2000.

VCA-TUCSON. The second Varsity Clubs resort is a two-acre property
located in Tucson, Arizona, approximately three miles from the University of
Arizona and 110 miles from Phoenix, Arizona. VCA-Tucson offers a total of 60
units, consisting of studio, one- and two-bedroom suites. This resort has an
onsite sales office.

VCA-Tucson was designed in accordance with the VCA-South Bend
prototype, with certain modifications made to improve operating efficiencies and
satisfy local tastes. Each of the suites includes a king master bedroom, living
room with sofa sleeper, kitchenette, whirlpool spa, as well as color television
with premium movie channels. Amenities at this resort include a Sports Lounge
designed similar to that at VCA-South Bend, the Twenty-Four Hour Sports Ticker,
touchdown breakfast buffet, Joey Pizza (a restaurant theme originally introduced
at Los Abrigados), billiards room, library, gift shop, fitness center, outdoor
heated pool, whirlpool spa, steam room, children's playground, bocce ball court,
business center and special events facilities. VCA-Tucson is an II Five-Star
resort.

7

At December 31, 1998, this resort contained 3,120 one-week Vacation
Ownership Interests, of which 1,686 were available for sale (excluding 1,125
Vacation Ownership Interests owned by Premiere Vacation Club).

THE SEA OF CORTEZ BEACH CLUB

The Sea of Cortez Beach Club is an ocean front property currently under
construction adjacent to the San Carlos Plaza Resort on the Sea of Cortez in San
Carlos, Mexico. The Company, through Premiere Vacation Club, has acquired 1,500
25-year right-to-use Vacation Ownership Interests in 32 one- and two- bedroom
units in The Sea of Cortez Beach Club upon completion of construction, which is
expected to be in late 1999. The Company intends to market such Vacation
Ownership Interests exclusively through Premiere Vacation Club. Until
construction is complete, Premiere Vacation Club members wishing to visit San
Carlos may utilize units in the San Carlos Plaza Resort and all its resort
amenities. The resort amenities will continue to be available to owners of
Vacation Ownership Interests in The Sea of Cortez Beach Club (including Premiere
Vacation Club owners as discussed more fully below) following completion of
construction. Such amenities include two outdoor swimming pools, whirlpool spa,
fitness center, three restaurants, several lounges, gift shops and water sports
equipment. Each unit in The Sea of Cortez Beach Club will have a separate living
area, bedroom(s), full kitchen and balcony or patio. In January 1999, the
Company annexed 1,500 San Carlos Vacation Ownership Interests into Premiere
Vacation Club and refiled the Premiere Vacation Club registration with the
Arizona Department of Real Estate to reflect this annexation. The Sea of Cortez
Beach Club will be an RCI Resort and has been awarded Gold Crown status. A small
onsite sales office is already operating at the San Carlos Plaza Resort and is
currently offering Vacation Ownership Interests in Premiere Vacation Club.

PREMIERE VACATION CLUB

In January 1998 the Company recorded in Maricopa County, Arizona its
proprietary Premiere Vacation Club Membership Plan and in May 1998 annexed a
total of 5,000 Vacation Ownership Interests into the Club and received
Department of Real Estate approval in the State of Arizona to commence selling
Vacation Ownership Interests in the Premiere Vacation Club. The 5,000 Vacation
Ownership Interests annexed into the Club consisted of 1,035 Vacation Ownership
Interests in Los Abrigados Resort & Spa, 265 Vacation Ownership Interests in The
Inn at Los Abrigados, 1,315 Vacation Ownership Interests in Kohl's Ranch Lodge,
565 Vacation Ownership Interests in Golden Eagle Resort, 695 Vacation Ownership
Interests in VCA-South Bend and 1,125 Vacation Ownership Interests in
VCA-Tucson. In January 1999, 1,500 San Carlos Vacation Ownership Interests were
annexed into Premiere Vacation Club, bringing the total Premiere Vacation Club
Vacation Ownership Interests to 6,500 at that date.

At December 31, 1998, 4,195 of the 5,000 Premiere Vacation Club
Vacation Ownership Interests were available for sale. Premiere Vacation Club is
affiliated with II and is offered for sale at each of the Company's sales
offices.

ADDITIONAL INTERESTS

In addition to the ILX Resorts, ILX owns a designated number of
Vacation Ownership Interests at additional resorts owned by unaffiliated third
parties. At December 31, 1998, the Company owned 12 Vacation Ownership Interests
at the Ventura Resort located in Boca Raton, Florida. Purchasers of Vacation
Ownership Interests at Ventura Resort acquire deed and title to a particular
unit, which entitles the purchaser to use of the unit and to use the resort's
common area during a fixed designated time period. As of December 31, 1998, the
Company also owned 39 Vacation Ownership Interests at the Costa Vida Vallarta
Resort, located on a private beach, just minutes south of Puerto Vallarta,
Mexico. Vacation Ownership Interests in the Costa Vida Vallarta Resort consist
solely of contractual use rights which expire in 2009. The Company also owns, in
addition to the 106 Vacation Ownership Interests in the Roundhouse Resort as
disclosed above, one to two Vacation Ownership Interests in each of a number of
additional resorts that it holds for resale.

OPERATING STRATEGIES

The Company's operating strategy seeks to emphasize the following
characteristics, which management believes provide ILX with certain competitive
advantages within the vacation ownership industry.

FLEXIBLE VACATION OWNERSHIP INTEREST PURCHASE OPTIONS. The Company
believes the flexibility associated with its inventory of Vacation Ownership
Interests provides a uniquely appealing opportunity for ILX Owners. Unlike many
of the Company's competitors, substantially all of the Company's inventory of
Vacation Ownership Interests at the ILX Resorts are intended to be used on dates
specified from time to time by the ILX Owner within a broad range of available
dates and not fixed at the time of purchase. Purchasers of a Vacation Ownership
Interest in the Company's proprietary branded Premiere Vacation Club are
entitled to use their Vacation Ownership Interest at any resort in the Premiere
Vacation Club or may split up their Vacation Ownership Interest according to the
owner's needs and preferences and it may be used at any number of participating
resorts, as well as thousands of other resorts through the domestic and
international exchange programs in which ILX Owners participate. In addition,
Vacation Ownership Interests at Varsity

8

Clubs may be purchased for highly desirable single-day uses, a collection of
single days (such as designated days during an entire football or other sports
season) or other packages suited to meet each ILX Owner's preferences.

CUSTOMER SATISFACTION. The Company believes that its inventory of
highly desirable resorts with extensive amenities combined with flexible
purchase options have resulted in a high level of customer satisfaction. Each of
the ILX Resorts is located in an area with unique tourist attractions and offers
food, beverage and other amenities comparable to full-service commercial lodging
facilities, at discounted prices to ILX Owners. As a result, the Company
believes ILX Owners generally have a high level of satisfaction resulting in
additional purchases and increased goodwill. The Company intends to capitalize
upon this by directing a portion of its marketing efforts towards increasing
sales of Vacation Ownership Interests to ILX Owners.

ENHANCED AMENITIES. Each of the ILX Resorts has at least one
full-service restaurant and other food and beverage facilities in addition to a
range of other amenities typically found at high-quality resorts, such as
horseback riding, golf, swimming pools and exercise facilities. The Roundhouse
Resort contains a fully equipped restaurant, which had not been in operation at
the time of the Company's acquisition in December 1997 nor to date, but which
the Company intends to commence operating in the summer of 1999. The Company
believes that most resorts offering Vacation Ownership Interests have none or
only limited restaurant and other food and beverage facilities. As a result,
management believes ILX Owners appreciate the ability to enjoy traditional
full-service commercial hotel amenities and also maintain the option to use more
economical in-room facilities. See "- The Resorts."

DEMONSTRATED ABILITY TO ACQUIRE AND DEVELOP PROPERTIES. The Company has
historically been successful at acquiring resorts in settings of natural beauty
at relatively low costs. The Company's acquisition strategy is to identify
underutilized or distressed properties in locations with high tourist appeal and
access to major metropolitan centers. Thereafter, the Company's redevelopment
efforts are primarily targeted at improving the amenities and appointments of
such properties. Recently, the Company has successfully developed its prototype
Varsity Clubs of America resort, VCA-South Bend, and a second Varsity Clubs
facility, VCA-Tucson. Future Varsity Clubs will be designed and constructed in
accordance with the VCA-South Bend prototype, with appropriate modifications and
improvements. The Company believes that its acquisition and development
strategies have resulted in a portfolio of desirable properties with a
relatively low cost of sales margin.

CONVENIENT ACCESS RESORTS. The Company's CARs are typically located
within a two-hour drive of an ILX Owner's principal residence, which
accommodates a demand for more frequent and convenient "short-stay" vacations
without the costs of airfare. This proximity also facilitates marketing of the
Company's Premiere Vacation Club, which permits members to divide their Vacation
Ownership Interest into shorter stays at any of the Company's properties
included in the Premiere Vacation Club (including the VCAs) or exchange their
entire interest during any year through an exchange network. In addition to the
use of their Vacation Ownership Interest, ILX Owners are also entitled to
unlimited day-use of the offered amenities and discounted food, beverage and
other services at their individual ILX Resort or, in the case of Premiere
Vacation Club members, at any ILX Resort included in Premiere Vacation Club,
thereby facilitating use and enhancing the benefits of ownership by ILX Owners.

STANDARD DESIGN, LOWER CONSTRUCTION AND OPERATING COSTS OF VARSITY
CLUBS. The Company's Varsity Clubs concept is based upon its VCA-South Bend
prototype. While each Varsity Club may have aspects uniquely tailored to its
targeted customer base, the Company believes that its standard architectural and
interior designs for Varsity Clubs will significantly reduce associated
development and construction costs. Standardization also allows the Company to
rapidly develop new Varsity Clubs and integrate new resorts in response to
demand. The Company anticipates that new Varsity Clubs can be constructed within
one year from acquisition of the underlying real property.

PREMIUM LOCATIONS. The Company believes that the variety and natural
beauty of the surroundings for its CARs enhance their attraction to customers.
Substantially all of the ILX Resorts are located in the western United States in
part because of the numerous locations in that region which are attractive to
tourists and convenient to major metropolitan areas. Substantially all of the
Company's inventory of Vacation Ownership Interests qualify as "red time," the
highest demand classification for purposes of participation in exchange networks
such as RCI and II. The Company intends to develop additional Varsity Clubs and
Premiere Vacation Club resorts in other western United States sites that offer
natural settings or other attractions to entice tourists to visit such
locations.

INTEGRATED IN-HOUSE OPERATIONS. Substantially all of the Company's
marketing, sales, development, property management, financing and collections
operations are conducted internally, except certain minimal marketing functions
and those payment and collection activities related to the financing by third
parties of promissory notes given by ILX owners as partial payment for a
Vacation Ownership Interest ("Customer Notes"). In addition, the Company
operates all of the ILX Resorts on a centralized basis, with operating and
maintenance costs paid from ILX Owners' dues as well as hotel rental revenues.
The Company believes that its internal capabilities result in greater control
and consistency of all phases of its operations and result in lower overall

9

costs than generally associated with outsourcing such operations. Such
integration also facilitates the Company's Premiere Vacation Club and the ILX
Resorts' qualification in the RCI and II exchange networks, among others.

DIRECTED MARKETING. The Company's marketing strategy with respect to
its Premiere Vacation Club is to target potential customers who have a
demonstrated interest in the location of its ILX Resorts or a likelihood of
frequent travel. As opposed to traditional marketing strategies which often
emphasize telemarketing and direct mail activities focused on promotional
inducements unrelated to travel, the Company's marketing activities primarily
offer travel-related inducements (such as discounted or complimentary vacations
at nearby ILX Resorts or at non-affiliated hotels in popular destinations in the
western United States). By offering travel-related inducements, the Company
believes it is better able to identify customers who like to travel, which
results in a higher percentage of sales per contacts. In addition, the Company
developed its proprietary Varsity Clubs of America concept to capitalize upon
affinity marketing strategies. The Company believes that a high-quality "city
club" experience combined with the traditional benefits associated with Vacation
Ownership Interests, such as the opportunity to participate in exchange
networks, will appeal to consumers in the local markets of each Varsity Club.
Further, the Varsity Clubs concept is intended to take advantage of a marketing
base of alumni, sports enthusiasts, parents of students, corporate sponsors and
others affiliated with each university next to which a Varsity Club will be
developed. For example, alumni of the University of Arizona, to whom the Company
is marketing Vacation Ownership Interests at its VCA-Tucson, currently number
approximately 180,000. The Company believes that these marketing strategies
permit it to take advantage of existing affinities, resulting in a higher rate
of closings per customer contacts.

PREMIERE VACATION CLUB

Sales of Vacation Ownership Interests in Premiere Vacation Club
commenced in June 1998. Purchasers are offered deeded membership interests that
may be used in their entirety at one time or may be divided into shorter stays
at a variety of the Company's resorts or may be exchanged through a
participating exchange network. The Company's Premiere Vacation Club emphasizes
CARs (i) which facilitate short-stay vacations with relatively low cost and time
associated with travel to the ILX Resort, (ii) located near settings of natural
beauty, (iii) with high quality amenities and resort services and (iv) which
facilitate flexible use options. The Company believes that its proprietary
branded Premiere Vacation Club will capitalize upon affinity marketing
strategies and increase the goodwill associated with the ILX Resorts. In
addition, membership interests in the Premiere Vacation Club are marketed at an
average higher gross sales price than sales of Vacation Ownership Interests in a
single ILX Resort, which the Company believes will result in increased revenues.
The Company has begun marketing membership interests in its Premiere Vacation
Club to ILX Owners as well as first-time buyers, thereby expanding its sales
volume without increasing its sales and marketing costs in the same proportion
as generally associated with sales to first-time buyers.

Initially, the Company's Premiere Vacation Club inventory consisted of
Vacation Ownership Interests in the ILX Resorts. New resorts will be added
through the Company's aggressive pursuit of selected acquisition opportunities,
such as the addition of the 1,500 25-year right-to-use Vacation Ownership
Interests in The Sea of Cortez Beach Club in San Carlos, Mexico. By marketing
its inventory of Vacation Ownership Interests through the Premiere Vacation
Club, the Company believes it has greater flexibility with respect to potential
acquisition opportunities than generally associated with the sale of Vacation
Ownership Interests in a single vacation resort, to the extent that small or
remote resorts which may be inefficient to market as a single location resort
may enhance the consumer appeal of a membership interest in the Premiere
Vacation Club. With its existing and planned resorts in Arizona, the Company is
seeking to build a critical mass of CARs within driving distance of the Phoenix
and Tucson metropolitan markets to support the initial introduction of the
Premiere Vacation Club concept. The Company believes that the geographic and
cultural diversity of Arizona make that state particularly appropriate for this
expansion. Thereafter, the Company intends to develop networks of CARs proximate
to other major metropolitan areas in the western United States. Further
capitalizing on the flexibility of Premiere Vacation Club, in March 1999 the
Company entered into an agreement with Coast Resorts whereby Premiere Vacation
Club members may utilize their Premiere time in any of the three Coast Resorts
in Las Vegas, Nevada, a convenient access destination very attractive to the
Phoenix and Tucson markets.

VARSITY CLUBS OF AMERICA

The Company intends to pursue the expansion of its proprietary branded
Varsity Clubs concept. The Company will focus on development of additional
Varsity Clubs near prominent colleges and universities in the western United
States located in areas with a significant base of existing tourism and access
to major population centers. The Varsity Clubs of America concept is primarily
intended to offer residents in major population centers a "city club" experience
with day-use privileges regularly available, as well as the opportunity to
exchange their Vacation Ownership Interest through the exchange networks in
which ILX Owners participate. The Varsity Clubs concept also seeks to maximize
the appeal of such urban timeshare resorts by strategically locating each of
them proximate to one or more prominent colleges and universities with
nationally recognized athletic, cultural and other events. Large universities
host a variety of sporting, recreational, academic and cultural events that
create a substantial and relatively constant influx of participants, attendees
and spectators. The Varsity Clubs concept is designed to address the specific

10

needs of these individuals and entities by creating specialty vacation ownership
resorts that have a flexible ownership structure, enabling the purchase of
anything from a single day, a collection of single days (such as an entire
football or other sports' season) or a traditional one-week period. Each Varsity
Clubs facility will operate as a hotel to the extent of unsold or unused
vacation ownership inventory.

The prototype VCA-South Bend facility is an all-suite, 62-unit lodging
facility that features amenities such as The Stadium (a sports-theme atrium
lounge), a private Member's Lounge, exercise facilities, a swimming pool and
whirlpool spa, complete business services and other facilities popular with the
target market of likely purchasers. The prototype Varsity Clubs facility is
based on a four-acre configuration expandable to as many as 90 units, without
the need to acquire additional real property, and can be built in smaller
configurations if warranted by a particular market or if dictated by the
availability of land.

The first Varsity Clubs facility was completed in August 1995 and is
located approximately three miles from the University of Notre Dame and Notre
Dame Stadium in South Bend, Indiana, and approximately 90 miles from Chicago,
Illinois. Customers purchase deed and title to a floating period's use of a unit
and unlimited day-use privileges at the common areas of the property. Purchasers
may also receive the right to use the facility on specified dates, such as dates
of home football games, for which they pay a premium. A total of 62 units, or
3,224 one-week intervals, have been constructed at VCA-South Bend and, at
December 31, 1998, approximately 708 one-week intervals were available for sale
(excluding 695 Vacation Ownership Interests owned by Premiere Vacation Club) and
expansion capacity exists for up to an additional 24 units (1,248 one-week
Vacation Ownership Interests). To date, VCA-South Bend has been able to compete
favorably for commercial guests because of its superior facilities and amenities
relative to other lodging accommodations in the area.

The second Varsity Clubs facility is located in Tucson, Arizona, less
than three miles from the University of Arizona. This second Varsity Club was
completed in July 1998 and offers 60 suites, or 3,120 one-week intervals.
VCA-Tucson was designed in accordance with the VCA-South Bend prototype, with
certain modifications made to improve efficiency and incorporate local design
themes. The Company chose Tucson as a site for its Varsity Clubs concept because
of its status as a year-round destination location, a large residential
population base of approximately 750,000, and the proximity to the University of
Arizona, which has a current alumni base in excess of 180,000 people. The
Company believes that all of these factors increase the appeal of VCA-Tucson to
prospective buyers as well as providing increased trading power for purchasers
of Vacation Ownership Interests in the resort for purposes of participation in
exchange networks. The VCA-Tucson onsite sales office offers customers both
Premiere Vacation Club and VCA-Tucson Vacation Ownership Interests. Premiere
Vacation Club Interests provide the buyer with local city club privileges,
access to all resorts in Premiere Vacation Club, as well as a variety of
additional benefits.

The Company is considering various other sites for development of
additional Varsity Clubs facilities in the next five to seven years. Management
believes there exist numerous sites in the western United States that are
attractive for the development of additional Varsity Clubs. The Company intends
to expand its Varsity Clubs concept to up to five of these areas in the next
five years, based upon the VCA-South Bend prototype, with certain modifications
and improvements. The Company also believes that Varsity Clubs will establish
their own brand name recognition as additional facilities are offered, each with
a consistent design and selection of amenities. Varsity Clubs expansion efforts
will initially be primarily focused on metropolitan areas in the western United
States, each located near one or more large universities, but the Company will
assess other potential opportunities as they arise. Ideally, the Company will
seek to place additional Varsity Clubs near universities that are located in or
convenient to popular tourist destination locations in or near large
metropolitan areas, such as Tempe, Arizona; Boulder, Colorado; Las Vegas,
Nevada; Palo Alto, California; Salt Lake City - Provo, Utah; and Seattle,
Washington. The Company will also seek to broaden the affinity marketing base of
its future Varsity Clubs by situating them proximate to more than one prominent
college or university, where appropriate. The Varsity Clubs concept also seeks
to capitalize on affinity marketing strategies through the perceived affiliation
with a nationally recognized university and the "city club" experience which the
Company seeks to associate with the Varsity Clubs of America brand name. The
Company intends to provide purchasers of Vacation Ownership Interests in one
Varsity Club certain benefits at other Varsity Clubs in order to enhance their
appeal to consumers.

SALES AND MARKETING

Marketing is the process by which the Company attracts potential
customers to visit and tour an ILX Resort or attend a sales presentation. Sales
is the process by which the Company seeks to sell a Vacation Ownership Interest
to a potential customer once he or she arrives for a tour at an ILX Resort or
attends a sales presentation. The Company believes it has the marketing and
sales infrastructure necessary to sell Vacation Ownership Interests on a
competitive basis. All of the Company's sales and the majority of the Company's
marketing functions are currently performed in-house and the Company invests
significant resources in attracting, training and seeking to retain its sales
and marketing employees. The Company believes this strategy provides it with
greater control over these critical functions, resulting in greater consistency
of customer relations and improved customer satisfaction. In addition,
management believes that its practice of hiring employees to staff its sales and
marketing functions, as opposed to using independent contractors as has been the
industry norm, results in a higher retention rate among its sales force and
provides a pool of experienced staff from which to draw upon as the Company's

11

business expands. The Company expends substantial resources identifying,
attracting and training its sales and marketing personnel and offers a full
package of employment benefits to its sales and marketing personnel. Management
believes that consistency and high quality in its sales and marketing operations
is crucial to its success. The Company believes that the package of benefits
offered to its sales and marketing employees is uncommon in the vacation
ownership industry and, as a result, attracts high quality personnel and
provides an incentive for their performance.

MARKETING. The Company's marketing activities are devoted primarily
towards (i) hotel guests at the ILX Resorts, (ii) RCI and II exchange program
participants staying at the ILX Resorts, (iii) off-premise contacts with
visitors to the local surroundings of the ILX Resorts and in the metropolitan
areas within driving distances of the ILX Resorts and (iv) direct mail and
telemarketing to residents of metropolitan areas within driving distance of the
ILX Resorts. The Company's marketing strategy seeks to target prospective buyers
who respond favorably to travel-related inducements because the Company believes
such consumers are more likely to travel and therefore have a greater likelihood
of purchasing a Vacation Ownership Interest. The Company identifies potential
purchasers through internally developed marketing techniques, and sells Vacation
Ownership Interests through its four sales offices located at ILX Resorts. The
Company primarily targets customers who live within driving distance of an ILX
Resort or who are vacationing at or near an ILX Resort. This practice allows the
Company to invite potential purchasers to experience the ILX Resorts and avoid
the more expensive marketing costs of subsidized airfare and lodging which are
typically associated with the vacation ownership industry. In addition, the
Company believes that its marketing strategy results in a higher percentage of
sales per prospective customer contacts as compared to many of its competitors
because its targeted customer base has a demonstrated interest in the locale of
an ILX Resort and/or a greater likelihood to take vacations.

Similar to branding techniques utilized by some of its competitors, the
Company also seeks to capitalize upon affinity marketing concepts in attracting
prospective buyers to its Varsity Clubs concept by seeking to develop a branded
"city club" experience for flexible use by local residents. In addition,
marketing of Varsity Clubs seeks to focus on alumni, parents of university
students and other persons or entities who have a preexisting affiliation with
or other attraction to the local university. All of the Company's marketing
activities emphasize the convenience of the ILX Resorts coupled with the
opportunity to participate in exchange networks as well as the quality and
breadth of amenities available at each of the ILX Resorts.

SALES. The Company actively sells its inventory of Vacation Ownership
Interests primarily through a sales staff of approximately 160 employees,
including approximately 130 sales agents at four sales offices, each located at
selected ILX Resorts. Prospective first-time purchasers participate in a tour of
the facilities as well as its related amenities, guided by a salesperson. At the
conclusion of the tour, the terms of making a purchase, including financing
alternatives, are explained to the customer. Approximately 20% to 25% of the
Company's sales have historically been made on a cash basis. However, for those
customers seeking financing, the Company conducts substantial credit
pre-approval research. The Company's point-of-sale credit pre-approval process
typically includes a review of the customer's credit history. After final
approval of a purchase, which includes verification of employment, the Company
waits until expiration of the applicable statutory waiting period, generally
from three to seven days, prior to recognizing a sale as complete.

In addition to generating sales to first-time buyers, the Company's
sales force seeks to generate sales of additional Vacation Ownership Interests
or Upgrades to ILX Owners. Sales to ILX Owners generally have lower marketing
costs associated with them as these buyers tend to be more familiar with the
nature of purchasing a Vacation Ownership Interest and the amenities offered by
the ILX Resorts. As a result of an increased emphasis upon sales to these
buyers, sales to ILX Owners accounted for 13.7% of Vacation Ownership Interest
sales by the Company during 1998. During 1997 and 1996, sales to ILX Owners
accounted for 12.5% and less than 6% of the Company's total sales, respectively.
The Company intends to increase its sales efforts with respect to ILX Owners.

Prior to June 1998, the Company's inventory of Vacation Ownership
Interests had historically consisted of a one-week interval which could be used
on an annual or an alternate-year basis in a specified ILX Resort during a
specified range of dates. ILX Owners could also participate in exchange networks
such as RCI and II. Commencing in June 1998, the Company began offering deeded
membership interests in its Premiere Vacation Club, which permit a member to
stay at one or more of the participating ILX Resorts for up to one week on an
annual or alternate-year basis. Premiere Vacation Club members may divide their
stays into shorter vacations at any time between a specified period of time,
enjoy unlimited day use and discounted goods and services at any ILX Resort, as
well as a variety of other benefits. The Company believes that the variety and
flexibility of use options associated with its inventory of Vacation Ownership
Interests are uniquely attractive to customers.

CUSTOMER FINANCING

The Company currently provides financing for approximately 75% to 80%
of its Vacation Ownership Interest sales. On financed sales, the Company
receives at least 10% of the aggregate sales price of Vacation Ownership
Interests as a down payment. Financing for the remainder is typically made
available for a term of seven years at a rate of 14% to 16% per annum. At

12

December 31, 1998, the Company had a portfolio of retained Customer Notes with
an aggregate principal amount of $19.6 million, of which $16.6 million were
serviced by an outside vendor and had a weighted average yield of 14.4% per
annum, which compares favorably to the Company's weighted average cost of
borrowings for such Customer Notes of 10.2% per annum.

The Company believes that providing available financing is essential to
the successful sales and marketing of its Vacation Ownership Interest inventory.
However, the Company seeks to minimize the risks associated with its financing
activities by emphasizing the credit pre-approval process. In addition, the
Company expends significant resources negotiating alternative repayment programs
for past due accounts, so as to minimize its actual losses. Collection
activities with respect to Customer Notes which the Company has hypothecated are
managed internally and serviced by a third-party on behalf of the lenders and
the Company. In addition, the Company may utilize third party collection
agencies for difficult accounts. Historically, these have represented only a
minimal percentage of the Customer Notes.

Prior to 1995, the Company sold the majority of its Customer Notes and
retained the small remaining portion, most of which were hypothecated. Since
1995, the Company has increased the amount of Customer Notes which it retains,
most of which it hypothecates, and, as a result, at December 31, 1998, the
Company retained Customer Notes in an aggregate principal amount of $19.6
million as compared to $7.9 million at December 31, 1995.

Although the terms of each Customer Note vary, typically such notes are
deemed past due when a scheduled payment is 30 days or more past due. In
addition, a delinquency occurs when an account becomes more than 90 days past
due. The Company seeks to avoid defaults by working closely with the lender or
its collection agent with respect to ILX Owners who become delinquent. The first
collection contact typically occurs within 16 to 30 days of a payment's due
date.

At December 31, 1998, the Company had agreements with a financial
institution for commitments totaling $20 million under which the Company could
sell certain of its Customer Notes. In March 1999, the Company entered into a
new agreement which increased the commitment amount to $40 million, reduced the
purchase rate and expanded the scope to include Customer Notes generated from
sales of Vacation Ownership Interests in additional ILX properties and Premiere
Vacation Club. The agreements provide for sales on a recourse basis with a
percentage of the amount sold held back by the respective financial institution
as additional collateral. Customer Notes may be sold at discounts or premiums to
the principal amount in order to yield the consumer market rate, as defined by
the financial institution. At December 31, 1998, $7.8 million of the $20 million
in commitments was available to the Company. The Company also has financing
commitments in the aggregate amount of $43.5 million, pursuant to which the
Company may hypothecate Customer Notes which are pledged to the lender as
collateral. These borrowings bear interest at rates from prime plus 1.5% to
prime plus 3%, have draw periods which expire in 2001 and 2002, and maturity
dates of 2006 and 2007. At December 31, 1998, $37 million was available to the
Company under these commitments. The Company currently reserves approximately 3%
of gross sales (including cash sales) as an allowance for doubtful accounts.
This reserve represents a percentage decrease since the Company's inception
based upon the Company's actual collections experience. At December 31, 1996,
1997 and 1998, the aggregate amount of these reserves was $2.6 million, $3.0
million and $3.5 million, respectively. During 1996, 1997 and 1998, the
Company's provision for doubtful accounts exceeded actual write-offs by $0.2
million, $0.4 million and $0.5 million, respectively. To the extent that the
Company's losses as a result of bad debt exceed its corresponding reserves, its
financial condition and results of operations may be materially adversely
affected.

OTHER OPERATIONS

RESORT OPERATIONS. The Company also receives revenues from (i) the
rental of its unsold or unused inventory of units at the ILX Resorts, (ii) the
sale of food, beverages and other amenities at such resorts and (iii) the
management and operation of the ILX Resorts. During 1998, the Company received
$12.2 million in net revenues from these operations, consisting of $6.4 million
in room rental revenue, $4.1 million in food and beverage revenue and $1.7
million in other revenue. Of these amounts, Los Abrigados contributed $8.7
million, or 71.3% of the Company's total resort operations revenues in 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Historically, the Company's resort operation activities have not
generated a material portion of the Company's net profits on a consolidated
business. Revenues from resort operations typically vary significantly from one
ILX Resort to another. In addition, changes in revenue received from these
operations have not typically correlated with fluctuations in the Company's
revenues from sales of Vacation Ownership Interests. Management expects this
trend to continue in the future in part because of the emphasis of the Company's
growth strategy on its Varsity Clubs, which have typically generated a lower
percentage of revenues from resort operations than that generated by the
Company's CARs. However, the Company believes that its resort management
activities directly complement the Company's efforts with respect to the
marketing and sales of Vacation Ownership Interests.

13

SEDONA SPA. The Company's operations also include the sale of personal
care products through its majority-owned subsidiary Sedona Worldwide
Incorporated. The Company's personal care products had historically been
marketed under its proprietary Red Rock Collection brand name through the ILX
Resorts. Commencing in the second quarter of 1998, these products were marketed
under the brand name "Sedona Spa" and, in connection with such change, certain
modifications to the product line were implemented. This resort-based sales
program includes an upscale line of personal care amenities, in-room gift basket
promotions and retail product sales at the ILX Resorts. Sedona Spa products are
primarily used by the Company as promotion incentives to potential purchasers
who attend the Company's sales tours and presentations. The Company then uses
direct mail to market Sedona Spa products to resort customers and tour
participants who have previously used the products. Sales of Sedona Spa products
are included in "Income from land and other, net" on the Company's financial
statements and, to date, have not resulted in a material amount of net revenues
or profits to the Company. The Company has not in the past and does not intend
in the future to devote a significant portion of its resources to sales of
Sedona Spa products. The Company has announced its intention to spin-off its 80%
ownership in Sedona Worldwide Incorporated to the shareholders of ILX and has
filed a Registration Statement on Form 10-SB for the proposed spin-off with the
Securities and Exchange Commission. The Form 10-SB became effective by lapse of
time on January 3, 1999 and, as a result, Sedona Worldwide Incorporated became a
reporting company under the Securities and Exchange Act of 1934 as of that date.
However, the SEC is currently reviewing the Registration Statement as of the
date of this filing.

LAND SALES. Since l993, the Company has also received revenues from the
sale of primarily unimproved real property. These operations originated as a
result of the Company's acquisition of its wholly owned subsidiary, Genesis
Investment Group, Inc. ("Genesis"), in November 1993. The sale of real property
is not a core business function for the Company and, as such, the Company has
not historically and does not intend in the future to devote a material portion
of its resources to these operations. Typically, the Company has sold these
assets as subdivided lots or large unimproved parcels. The Company intends to
sell substantially all of the remaining assets during the next twelve to
twenty-four months, although there can be no assurance that it will be able to
sell these assets at attractive prices, if at all, during this time. Following
the sale of these assets, management does not expect to engage in the sale of
real property.

RESALE OPERATIONS. In June 1998, the Company acquired a 51% interest in
Timeshare Resale Brokers, Inc. ("TRBI"), an Arizona company engaged in the
resale of Vacation Ownership Interests on behalf of consumers and others, for
which it earns a commission upon sale. The operation is based in Sedona,
Arizona, and while the Company anticipates the possibility of expanding these
operations to additional vacation destinations and offering a resale multiple
listing service to other resale companies, to date the operations of TRBI have
not been material to the Company.

PARTICIPATION IN EXCHANGE NETWORKS

The Company believes that consumers are more likely to purchase from
its inventory of Vacation Ownership Interests as a result of the Company's
participation in the Vacation Ownership Interest exchange networks operated by
RCI and II, the leading exchange network operators. In a 1995 study sponsored by
the Alliance for Timeshare Excellence and the American Resort Development
Association, exchange opportunity was cited by purchasers of interval interests
as one of the most significant factors in their decision to purchase an
interest. Membership in RCI or II allows ILX Owners to exchange in a particular
year their occupancy right in the unit in which they own a Vacation Ownership
Interest for an occupancy right at the same time or a different time in another
participating resort, based upon availability and the payment of a variable
exchange fee. A participating ILX Owner may exchange his or her Vacation
Ownership Interest for an occupancy right in another participating resort by
listing the Vacation Ownership Interest as available with the exchange network
operator and by requesting occupancy at another participating resort, indicating
the particular resort or geographic area to which the owner desires to travel,
the size of the unit desired and the period during which occupancy is desired.
The exchange network assigns a rating to each listed Vacation Ownership
Interest, based upon a number of factors, including the location and size of the
unit, the quality of the resort and the period of the year during which the
Vacation Ownership Interest is available, and attempts to satisfy the exchange
request by providing an occupancy right in another Vacation Ownership Interest
with a similar rating. Approximately 85% of the Vacation Ownership Interests at
the ILX Resorts qualify as "red time," the highest demand classification,
thereby increasing the exchange opportunities available to ILX Owners. If RCI or
II is unable to meet the member's initial request, the network operator may
suggest alternative resorts, based on availability. In addition, ILX's Owner
Services Department has established arrangements with additional resorts and
smaller exchange networks through which it offers exchange opportunities and
discounted vacation getaways to ILX Owners. The Company believes that its direct
participation in the exchange process, coupled with these additional services,
provides ILX with a competitive advantage and tends to increase customer
satisfaction.

COMPETITION

ILX's Vacation Ownership Interest plans compete both with other
Vacation Ownership Interest plans as well as hotels, motels, condominium
developments and second homes. ILX considers the direct competitors of
individual resorts to also include alternative accommodations, including hotels,
motels, bed-and-breakfasts and small vacation ownership operators located within

14

the immediate geographic vicinity of such resort. This is particularly true with
respect to its CARs that tend to attract purchasers whose decision to buy a
Vacation Ownership Interest is likely to be influenced by the convenience of the
resort to their principal residence.

The Vacation Ownership Interest industry historically has been highly
fragmented and dominated by a very large number of local and regional resort
developers and operators, each with limited portfolios. More recently, many of
the world's most widely-recognized lodging, hospitality and entertainment
companies have begun to develop and sell vacation ownership interests under
their brand names, including Marriott Ownership Resorts, Walt Disney Company,
Hilton Hotels Corporation, Hyatt Corporation, Four Seasons Hotels & Resorts and
Promus Hotel Corporation. In addition, other publicly-traded companies such as
Sunterra Resorts, Fairfield Communities, Inc., Silverleaf Resorts, Inc.,
Trendwest Resorts, Inc., Bluegreen Corporation and Vistana, Inc. currently
compete or may compete in the future with the Company. Furthermore, significant
competition exists in other markets in which the Company currently operates or
is developing vacation ownership resorts. Many entities with which the Company
competes have significantly greater access to financial, sales and marketing and
other resources than those of the Company and may be able to grow at a more
rapid rate or more profitably as a result. Management anticipates competition to
increase in the future as a result of consolidation in the vacation ownership
industry. There can be no assurance that the Company will be able to
successfully compete with such companies.

GOVERNMENTAL REGULATION

GENERAL. The Company's marketing and sales activities and other resort
operations are subject to extensive regulation by the federal government and the
states in which the Company's resorts are located and in which its Vacation
Ownership Interests are marketed and sold. Federal legislation to which the
Company is or may be subject includes the Federal Trade Commission Act, the Fair
Housing Act, the Truth-in-Lending Act, the Real Estate Settlement Procedures
Act, the Equal Credit Opportunity Act, the Interstate Land Sales Full Disclosure
Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act and the Civil
Rights Acts of 1964, 1968 and 1991. Many states have adopted legislation as well
as specific laws and regulations regarding the sale of Vacation Ownership
Interests. The laws of most states, including Arizona, require a designated
state authority to approve a detailed offering statement describing the Company
and all material aspects of the resort and sale of Vacation Ownership Interests
at such resort. In addition, the laws of most states in which the Company sells
Vacation Ownership Interests grant the purchaser of a Vacation Ownership
Interest the right to rescind a contract of purchase at any time within a
statutory rescission period. Furthermore, most states have other laws which
regulate the Company's activities, such as real estate licensure laws, travel
sales licensure laws, anti-fraud laws, telemarketing laws, prize, gift and
sweepstakes laws, and labor laws. The Company believes that it is in material
compliance with all applicable federal, state, local and foreign laws and
regulations to which it is currently subject.

ENVIRONMENTAL MATTERS. Under applicable federal, state and local
environmental laws and regulations, a current or previous owner or operator of
real estate may be required to investigate, remediate and remove hazardous or
toxic substances at such property, and may be held liable for property damage
and for investigation, remediation and removal costs incurred by such parties in
connection with the contamination. Such laws typically impose such liability
without regard to whether the owner or operator knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. The costs associated with compliance
with such regulations may be substantial, and the presence of such substances,
or the failure to properly remediate the contamination on such property, may
adversely affect the owner's or operator's ability to sell or rent such property
or to borrow against such property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances at a disposal or
treatment facility also may be liable for the costs of removal or remediation of
a release of hazardous or toxic substances at such disposal or treatment
facility, whether or not such facility is owned or operated by such person. In
addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs it incurs in connection with the
contamination. Finally, the owner or operator of a site may be subject to common
law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site. In connection with its
ownership and operation of its properties, the Company may be potentially liable
for such costs.

The Company does not always conduct Phase I environmental assessments
at the ILX Resorts, properties under development and properties subject to
acquisition. Because many of the Company's resorts are typically found in remote
locations, it does not consider the risks of environmental liabilities
significant enough to warrant the performance of Phase I assessments at such
locations. Failure to obtain such reports may result in the Company acquiring or
developing unusable property or assuming certain liabilities which could have
been avoided if the Company had the information typically discovered in a Phase
I report. However, when appropriate, the Company has in the past and will in the
future obtain Phase I reports. To date, the Company has obtained environmental
reports with respect to three of the ILX Resorts. In addition, the Company does
conduct significant in-house due diligence prior to the acquisition of any real
property interests. To date, the Company's investigation of its properties have
not revealed any environmental liability that the Company believes would have a
material adverse effect on the Company, its business, assets, financial
condition or results of operations, nor is the Company aware of any such
material environmental liability.

15

The Company believes that its properties are in compliance in all
material respects with all federal, state and local laws, ordinances and
regulations regarding hazardous or toxic substances. The Company has not been
notified by any governmental authority or any third party, and is not otherwise
aware, of any material noncompliance, liability or claim relating to hazardous
or toxic substances or petroleum products in connection with any of its present
properties.

OTHER REGULATIONS. Under various state and federal laws governing
housing and places of public accommodation, the Company is required to meet
certain requirements related to access and use by disabled persons. Although
management believes that the Company's resorts are substantially in compliance
with present requirements of such laws, the Company may incur additional costs
of compliance in connection with the development of new resorts, or conversion
or renovation of ILX Resorts. Additional legislation may impose additional
requirements on owners with respect to access by disabled persons. The aggregate
costs associated with compliance with such regulations are not currently known,
and, while such costs are not expected to have a material effect on the Company,
such costs could be substantial. Limitations or restrictions on the completion
of certain renovations may limit application of the Company's growth strategy in
certain instances or reduce profit margins on the Company's operations.

EMPLOYEES

As of December 31, 1998, the Company had approximately 790 employees,
of which approximately 540 were employed on a full-time basis (including
approximately 130 employed on a full-time equivalent basis of 28 hours per
week). The Company believes relations with its employees are good and none of
its employees are represented by labor unions.

INSURANCE

The Company carries comprehensive liability, business interruption,
title, fire and storm insurance with respect to the ILX Resorts, with policy
specifications, insured limits and deductibles customarily carried for similar
properties which the Company believes are adequate. There are, however, certain
types of losses (such as losses caused by floods or acts of war) that are not
generally insured because they are either uninsurable or not economically
insurable. Should an uninsured loss or a loss in excess of insured limits occur,
the Company could lose its capital invested in a resort, as well as the
anticipated future revenues from such resort and would continue to be obligated
on any mortgage indebtedness or other obligations related to the property. Any
such loss could have a material adverse effect on the Company.

CORPORATE HEADQUARTERS

The Company leases 5,444 square feet for its corporate offices in
Phoenix, Arizona, under a lease which expires on January 31, 2002.

ITEM 3. LEGAL PROCEEDINGS

A dispute has arisen between the general contractor, Summit Builders,
and the Company's wholly owned subsidiary, VCA Tucson Incorporated with respect
to amounts owing under the guaranteed maximum price contract relating to the
construction of VCA-Tucson. Jeffrey C. Stone dba Summit Builders has filed a
demand for arbitration with the American Arbitration Association, claiming
damages of $1,763,084.77. The Company is contesting the claim vigorously and has
filed a counterclaim in the amount of $2,372,427. The Company has obtained a
payment bond in the amount of $2,645,227.15 in accordance with the provisions of
Arizona law. In February 1999, the parties entered into a stipulation agreement
under which Summit Builders reduced certain of its claims totaling $197,239, the
Company agreed to claims totaling $226,854, of which $116,714 represents
undisputed change orders previously approved by the Company, and both parties
dismissed fraud claims previously sought. In the event that the arbitration
results in any liability to the Company greater than amounts accrued for the
guaranteed maximum price plus approved change orders, such additional liability
will increase the amount recorded as resort property held for sale for
VCA-Tucson and will be amortized to cost of sales prospectively as Vacation
Ownership Interests are sold.

A dispute has arisen between Bowne of Phoenix, Inc. ("Bowne"), and the
Company regarding amounts owing for printing related to the Company's 1998
follow-on public offering. Bowne and the Company reached agreement on a payment
of $110,000 for such services, which Bowne subsequently sought to change. Bowne
has filed suit in the Superior Court of Arizona seeking total payment of
$154,720.48 plus interest and attorneys' fees. The Company is vigorously
contesting the claim and believes the matter will be resolved for less than the
settlement previously agreed to by Bowne prior to its institution of litigation
and that the Company will recover its attorneys' fees and other costs of
litigation.

Other litigation has arisen in the normal course of the Company's
business, none of which is deemed to be material.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

16

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The following table sets forth, for the periods indicated, the range of
high and low sales prices for the Common Stock, after giving retroactive effect
to the one-for-five reverse stock split (the "Reverse Stock Split"), declared
effective by the Company on January 12, 1998. The information is as reported by
the Nasdaq SmallCap Market or the American Stock Exchange. Since February 11,
1998, the Common Stock has been listed on the American Stock Exchange. Prior to
February 11, 1998, it had been traded on the Nasdaq SmallCap Market. As of
December 31, 1998, the Common Stock was held by approximately 1,075 holders of
record. No dividends on the Common Stock have been declared by the Company since
inception and none are anticipated in the foreseeable future. Dividends on
Common Stock are subordinate to dividends payable on the Company's Series A and
Series C Preferred Stock.
COMMON STOCK
---------------
HIGH LOW
---- ---
YEAR ENDED DECEMBER 31, 1997
First Quarter $6.88 $5.00
Second Quarter 6.88 3.13
Third Quarter 8.44 3.91
Fourth Quarter 8.75 5.15
YEAR ENDED DECEMBER 31, 1998
First Quarter $7.25 $4.38
Second Quarter 7.25 5.69
Third Quarter 5.88 1.88
Fourth Quarter 2.94 1.75

ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION

The selected consolidated historical financial information set forth
below for the five years ended December 31, 1998 has been derived from the
consolidated financial statements of the Company which have been restated to
give effect to the Reverse Stock Split.

The Selected Consolidated Financial Information should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included herein, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

DECEMBER 31,
---------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues $27,881 $30,849 $31,581 $36,411 $36,745
Net income 2,148 625 1,051 1,668 62
Net income per share - basic .86 .24 .38 .60 .00
Net income per share - diluted .83 .24 .37 .59 .00
Total assets 28,403 37,753 41,275 43,722 51,997
Notes payable 7,332 13,528 16,434 22,051 23,002
Shareholders' equity 12,957 13,775 15,175 16,621 25,764

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION OF THE COMPANY'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS. WHEN USED IN
THIS FORM 10-K, THE WORDS "ESTIMATE," "PROJECTION," "INTEND," "ANTICIPATES" AND
SIMILAR TERMS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS THAT RELATE TO
THE COMPANY'S FUTURE PERFORMANCE. SUCH STATEMENTS ARE SUBJECT TO SUBSTANTIAL
UNCERTAINTY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE
FORWARD-LOOKING STATEMENTS SET FORTH BELOW. THE COMPANY UNDERTAKES NO OBLIGATION
TO PUBLICLY UPDATE OR REVISE ANY OF THE FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN.

17

OVERVIEW

ILX Resorts Incorporated was formed in 1986 to enter the Vacation
Ownership Interest business. The Company generates revenue primarily from the
sale and financing of Vacation Ownership Interests. The Company also generates
revenue from the rental of its unused or unsold inventory of units at the ILX
Resorts and from the sale of food, beverages or other services at such resorts.
The Company currently owns five resorts in Arizona, one in Indiana and one in
Colorado.

The Company recognizes revenues from the sale of Vacation Ownership
Interests at such time as a minimum of 10% of the purchase price has been
received in cash, the statutory rescission period has expired, the buyer is
committed to continued payments of the remaining purchase price and the
Company's future obligations for the Vacation Ownership Interests have been
released. Resort operating revenues are recorded as the rooms are rented or the
services are performed.

Costs associated with the acquisition and development of Vacation
Ownership Interests, including carrying costs such as interest and taxes, are
capitalized and amortized to cost of sales as the respective revenue is
recognized.

RESULTS OF OPERATIONS

The following table sets forth certain operating information for the
Company.

YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
---- ---- ----
As a percentage of total timeshare revenues:
Sales of Vacation Ownership Interests 62.2% 65.9% 61.2%
Resort operating revenue 34.7% 30.0% 33.2%
Interest income 3.1% 4.1% 5.6%
------- ------- -------
Total timeshare revenues 100.0% 100.0% 100.0%
======= ======= =======
As a percentage of sales of Vacation
Ownership Interests:
Cost of Vacation Ownership Interests sold 15.8% 13.4% 13.9%
Sales and marketing 53.4% 57.9% 68.0%
Provision for doubtful accounts 3.0% 2.9% 3.0%
Contribution margin percentage from sale
of Vacation Ownership Interests (1) 27.8% 25.7% 15.2%

As a percentage of resort operating revenue:
Cost of resort operations 95.1% 95.9% 97.3%

As a percentage of total timeshare revenues:
General and administrative 7.3% 8.2% 9.2%
Depreciation and amortization 1.5% 1.3% 1.0%
Timeshare operating income 13.4% 12.9% 5.6%

Selected operating data:
Vacation Ownership Interests sold (2)(3) 1,562 1,660 1,485
Average sales price per Vacation Ownership
Interest sold (excluding revenues from
Upgrades) (2) $11,963 $12,656 $13,013
Average sales price per Vacation Ownership
Interest sold (including revenues from
Upgrades) (2) $12,573 $14,446 $15,137
- ----------

(1) Defined as: the sum of Vacation Ownership Interest sales less the cost of
Vacation Ownership Interests sold less sales and marketing expenses less a
provision for doubtful accounts, divided by sales of Vacation Ownership
Interests.

(2) Reflects all Vacation Ownership Interests on an annual basis.

(3) Consists of an aggregate of 2,320, 2,512 and 2,303 biennial and annual
Vacation Ownership Interests for the years ended December 31, 1996, 1997
and 1998, respectively.

18

COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO DECEMBER 31, 1998

Sales of Vacation Ownership Interests decreased 6% or $1.5 million in
1998 to $22.5 million from $24.0 in 1997. The decrease reflects both a decrease
in tour flow in the Sedona and South Bend sales offices and a lower closing rate
in the Sedona sales office. Upgrade revenue, included in sales of Vacation
Ownership Interests, increased 3% from $3.0 million in 1997 to $3.1 million in
1998. The average sales price per Vacation Ownership Interest sold (including
Upgrades) increased 4.8% from $14,446 in 1997 to $15,137 in 1998 as a result of
increased sales prices.

The number of Vacation Ownership Interests sold decreased 10.5% from
1,660 in 1997 to 1,485 in 1998. The average sales price per Vacation Ownership
Interest sold (excluding Upgrades) increased 2.8% from $12,656 in 1997 to
$13,013 in 1998. Sales of Vacation Ownership Interests in 1998 included 1,637
biennial Vacation Ownership Interests (counted as 819 annual Vacation Ownership
Interests) and 666 annual Vacation Ownership Interests compared to 1,705
biennial Vacation Ownership Interest sales (counted as 853 annual Vacation
Ownership Interests) and 807 annual Vacation Ownership Interests in 1997. The
increase in average price per Vacation Ownership Interest sold (excluding
Upgrades) in 1998 resulted from increased prices related to the June 1998
introduction of a new product, Premiere Vacation Club. Premiere Vacation Club
members may use their time at any of the ILX Resorts, and enjoy day use and
food, beverage and other discounts at any ILX Resort. The Company charges higher
prices for the greater flexibility and benefits Premiere Vacation Club offers.

Resort operating revenues increased 11.9% or $1.3 million from $10.9
million in 1997 to $12.2 million in 1998 as a result of increased occupancy and
the opening of VCA-Tucson in July 1998. The cost of resort operations increased
13.3% or $1.4 million from $10.5 million in 1997 to $11.9 million in 1998 as a
result of costs related to increased occupancy and the opening of VCA-Tucson.
The increase in cost of resort operations as a percentage of resort operating
revenue from 95.9% in 1997 to 97.3% in 1998 reflects the start-up costs of
VCA-Tucson as well as initial lower occupancy of this new property.

The 36.4% increase in interest income from $1.5 million in 1997 to $2.1
million in 1998 is a result of the increased Customer Notes retained by the
Company and increases in interest rates charged by the Company on its Customer
Notes. The Company has sought to increase the percentage of Customer Notes it
retains (hypothecates) and borrows against, rather than sells, thereby
benefiting from the interest spread between the customer rate and the lower
Company borrowing rate.

Interest expense is comparable between years in spite of greater
hypothecation borrowings because of reductions in other notes payable from the
proceeds of the Company's follow-on offering in the second quarter of 1998.

Cost of Vacation Ownership Interests sold as a percentage of Vacation
Ownership Interest sales increased from 13.4% in 1997 to 13.9% in 1998 due to an
increase in the sales mix of purpose-built VCA facilities, which have a higher
cost basis than acquired resorts. Sales of Vacation Ownership Interests in
VCA-Tucson commenced in mid-1997, with the first full year of sales in 1998.

Sales and marketing as a percentage of sales of Vacation Ownership
Interests increased to 68.0% in 1998 compared to 57.9% in 1997 due primarily to
reduced closing rates at the Sedona sales office and to low tour flow to the
South Bend sales office, coupled with high marketing costs, as the Company
pursued start-up of alternative marketing approaches to generate tours to the
South Bend sales office. Tours to this office had previously been produced by an
outside vendor who was terminated due to unethical business practices.

The provision for doubtful accounts as a percentage of Vacation
Ownership Interest sales remained comparable between years.

General and administrative expenses increased 13.3% to $3.4 million in
1998 from $3.0 million in 1997. General and administrative expenses increased to
9.2% as a percentage of total timeshare revenues in 1998 from 8.2% in 1997 due
to an increase in payroll expense, professional fees and automation, in part due
to the infrastructure necessary for the introduction and support of Premiere
Vacation Club.

In December 1997, the Company sold its general partnership interest in
Lomacasi Cottages resulting in a non-recurring gain of $356,000.

The decrease in minority interests from 1997 to 1998 reflects the
buyout by the Company of the Los Abrigados Partners Limited Partnership ("LAP")
minority interest in August 1997.

19

COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31, 1997

Sales of Vacation Ownership Interests increased 22.1% or $4.4 million
in 1997 to $24.0 million from $19.6 in 1996. The increase reflects both an
increase in sales prices and an expanded marketing program whereby existing ILX
Owners were offered an opportunity to purchase an Upgrade. Upgrade revenue,
included in sales of Vacation Ownership Interests, increased 200% from $1.0
million in 1996 to $3.0 million in 1997. The average sales price per Vacation
Ownership Interest sold (including Upgrades) increased 14.9% from $12,573 in
1996 to $14,446 in 1997 as a result of increased sales prices and the additional
Upgrade sales. Upgrades generally do not involve the sale of additional Vacation
Ownership Interests (merely their exchange) and, therefore, such Upgrades
increase the average sales price per Vacation Ownership Interest sold.

The number of Vacation Ownership Interests sold increased 6.3% from
1,562 in 1996 to 1,660 in 1997. The average sales price per Vacation Ownership
Interest sold (excluding Upgrades) increased 5.8% from $11,963 in 1996 to
$12,656 in 1997. Sales of Vacation Ownership Interests in 1997 included 1,705
biennial Vacation Ownership Interests (counted as 853 annual Vacation Ownership
Interests) and 807 annual Vacation Ownership Interests compared to 1,517
biennial Vacation Ownership Interest sales (counted as 759 annual Vacation
Ownership Interests) and 803 annual Vacation Ownership Interests in 1996. The
increase in average price per Vacation Ownership Interest sold (excluding
Upgrades) in 1997 resulted both from increased prices and from the Company's
increased sales of biennial Vacation Ownership Interests (the sales price of
which is more than one-half of an annual Vacation Ownership Interest sales
price).

Resort operating revenues and cost of resort operations are comparable
between the two periods.

The 51.4% increase in interest income from $997,500 in 1996 to
$1,510,208 in 1997 is a result of increased Customer Notes retained by the
Company and an increase in interest rates charged by the Company on its Customer
Notes, effective July 1997.

Cost of Vacation Ownership Interests sold as a percentage of Vacation
Ownership Interest sales decreased from 15.8% in 1996 to 13.4% in 1997 due to
the increased sales of biennial Vacation Ownership Interests (which have a lower
cost of sales percentage than an annual Vacation Ownership Interest) and a
larger amount of Upgrade sales in 1997.

Sales and marketing as a percentage of sales of Vacation Ownership
Interests increased to 57.9% in 1997 compared to 53.4% in 1996 due to (i)
increased costs of generating tours to ILX Resorts in 1997, (ii) increased costs
from the opening of a new sales office in Tempe in 1997, (iii) increased costs
from the opening of a Tucson sales office in 1997 and (iv) recognition in 1996
of benefits from premiums issued to potential customers in prior periods which
expired without redemption. Increases in costs of generating tours in 1997 is
due in part to the trial of several new marketing strategies which were
determined ineffective and were therefore terminated in July and August 1997.
Additionally, the Tempe sales office was not retained beyond the trial period
(April-July 1997) due to high marketing costs and low closing rates.

The provision for doubtful accounts as a percentage of Vacation
Ownership Interest sales remained comparable between years.

General and administrative expenses increased 30.4% to $3.0 million in
1997 from $2.3 million in 1996. General and administrative expenses increased to
8.2% as a percentage of total timeshare revenues in 1997 from 7.3% in 1996 due
to an increase in payroll expense, professional fees and rent expense.

In December 1997, the Company sold its general partnership interest in
Lomacasi Cottages resulting in a non-recurring gain of $356,000.

The decrease in minority interests from 1996 to 1997 reflects (i) the
buyout by the Company of the LAP minority interest in August 1997 and (ii)
reduced LAP resort income.

LIQUIDITY AND CAPITAL RESOURCES

SOURCES OF CASH

The Company generates cash primarily from the sale of Vacation
Ownership Interests (including Upgrades), the financing of Customer Notes from
such sales and resort operations. Because the Company uses significant amounts
of cash in the development and marketing of Vacation Ownership Interests, but
collects the cash on the Customer Notes receivable over a long period of time,
borrowing against and/or selling receivables is necessary to provide sufficient
cash available to fund its normal operations.

20

Cash provided by financing activities increased to $9.8 million in 1998
from $3.4 million in 1997 and from a use of cash of $7 million in 1996,
reflecting the follow-on public offering of 1.6 million shares of common stock
in April 1998 for proceeds net of offering costs of $9.4 million. The Company
used a portion of the proceeds to reduce notes payable and negotiated in excess
of $40 million in lines of credit against consumer notes receivable at favorable
borrowing rates, consistent with its intent to retain more of its consumer notes
receivable and borrow against such notes, thereby earning the interest spread
between the consumer rate and the lower borrowing rate.

For regular Federal income tax purposes, the Company reports
substantially all of its non-factored financed Vacation Ownership Interest sales
under the installment method. Under the installment method, the Company
recognizes income on sales of Vacation Ownership Interests only when cash is
received by the Company in the form of a down payment, as installment payments
or from proceeds from the sale of the Customer Note. The deferral of income tax
liability conserves cash resources on a current basis. Interest may be imposed,
however, on the amount of tax attributable to the installment payments for the
period beginning on the date of sale and ending on the date the related tax is
paid. If the Company is otherwise not subject to tax in a particular year, no
interest is imposed since the interest is based on the amount of tax paid in
that year. The consolidated financial statements do not contain an accrual for
any interest expense that would be paid on the deferred taxes related to the
installment method, as the interest expense is not estimable.

At December 31, 1998, the Company, excluding its Genesis subsidiary,
had net operating loss ("NOL") carryforwards of $4.3 million, which expire in
2001 through 2012. At December 31, 1998, Genesis had federal NOL carryforwards
of $1.7 million, which are limited as to usage, because they arise from built-in
losses of an acquired company. In addition, such losses can only be utilized
through the earnings of Genesis and are limited to a maximum of $189,000 per
year. To the extent the entire $189,000 is not utilized in a given year, the
difference may be carried forward to future years. Any unused Genesis NOLs will
expire in 2008.

In addition, Section 382 of the Code imposes additional limitations on
the utilization of NOLs by a corporation following various types of ownership
changes which result in more than a 50% change in ownership of a corporation
within a three-year period. Such changes may result from new Common Stock
issuances by the Company or changes occurring as a result of filings with the
Securities and Exchange Commission of Schedules 13D and 13G by holders of more
than 5% of the Common Stock, whether involving the acquisition or disposition of
Common Stock. If such a subsequent change occurs, the limitations of Section 382
would apply and may limit or deny the future utilization of the NOL by the
Company, which could result in the Company paying substantial additional federal
and state taxes. See Note 8 of Notes to Consolidated Financial Statements.

USES OF CASH

Investing activities typically reflect a net use of cash because of
capital additions and loans to customers in connection with the Company's
Vacation Ownership Interest sales. Net cash used in investing activities in
1996, 1997 and 1998 was $3.5 million, $6.5 million and $4.8 million,
respectively. Cash used in investing activities decreased $1.7 million in 1998
compared to 1997, due to the 1997 purchase of the LAP minority interest, which
included a cash payment of approximately $820,000, and due to a reduction from
1997 purchases of property and equipment.

The Company requires funds to finance the acquisitions of property for
future resort development and to further develop the existing resorts, as well
as to make capital improvements and support current operations. Cash used in
operating activities in 1998 was $5.1 million as compared to cash provided by
operating activities of $2.8 million in 1997 reflecting the cost of completion
of VCA-Tucson in 1998. The construction and furnishing of this facility was
funded by a construction note and lease financing. The Company intends to build
twelve additional cabins at Kohl's Ranch in 1999, for which a financing
commitment equal to the construction cost is in place.

Customer defaults have a significant impact on cash available to the
Company from financing Customer notes receivables in that notes which are more
than 60 to 90 days past due are not eligible as collateral. As a result, the
Company in effect must repay borrowings against such notes or buy back such
notes if they were sold with recourse.

CREDIT FACILITIES AND CAPITAL

At December 31, 1998, the Company had agreements with a financial
institution for commitments totaling $20 million under which the Company could
sell certain of its Customer Notes. In March 1999, the Company entered into a
new agreement which increased the commitment amount to $40 million, reduced the
purchase rate and expanded the scope to include Customer Notes generated from
sales of Vacation Ownership Interests in additional ILX properties and Premiere
Vacation Club. The agreements provide for sales on a recourse basis with a
percentage of the amount sold held back by the respective financial institution

21

as additional collateral. Customer Notes may be sold at discounts or premiums to
the principal amount in order to yield the consumer market rate, as defined by
the financial institution. At December 31, 1998, $7.8 million of the $20 million
in commitments was available to the Company.

The Company also has financing commitments aggregating $43.5 million
whereby the Company may borrow against notes receivable pledged as collateral.
These borrowings bear interest at a rate of prime plus 1.5% to prime plus 3% and
expire at various dates from 1998 through 2000. At December 31, 1998,
approximately $37 million is available under these commitments.

In April 1998, the Company sold, through a public offering, 1,400,000
shares of its common stock at a price of $6.75; EVEREN Securities, Inc., the
underwriter of the offering, also exercised its overallotment option and
purchased an additional 200,000 shares at a price of $6.75, for total proceeds
of $10,800,000. Proceeds of the offering, net of the costs of the underwriting
(including a 7% underwriting discount, professional fees, printing and
promotional costs totaling $1,405,711), were used to reduce debt and for working
capital.

In the future, the Company may negotiate additional credit facilities,
issue corporate debt, issue equity securities, or any combination of the above.
Any debt incurred or issued by the Company may be secured or unsecured, may bear
interest at fixed or variable rates of interest, and may be subject to such
terms as management deems prudent. There is no assurance that the Company will
be able to secure additional corporate debt or equity at or beyond current
levels or that the Company will be able to maintain its current level of debt.

The Company believes available borrowing capacity, together with cash
generated from operations, will be sufficient to meet the Company's liquidity,
operating and capital requirements for at least the next 12 months.

OTHER

In June 1998, the Company acquired 1,500 one-week, 25-year right-to-use
Vacation Ownership Interests to be constructed on land adjacent to a full
service resort in San Carlos, Mexico. Such Vacation Ownership Interests were
contributed to the Company's Premiere Vacation Club in exchange for
participation in the profits of Premiere Vacation Club as provided in the
agreement. In January 1999, the Vacation Ownership Interests were annexed into
Premiere Vacation Club, with Premiere Vacation Club members having the right to
use the full service resort pending completion of construction.

SEASONALITY

The Company's revenues are moderately seasonal with the volume of ILX
Owners, hotel guests and Vacation Ownership Interest exchange participants
typically greatest in the second and third fiscal quarters. As the Company
expands into new markets and geographic locations it may experience increased or
additional seasonality dynamics which may cause the Company's operating results
to fluctuate.

YEAR 2000 ISSUES

The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
2-digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.

The Company believes it has identified all significant applications
that will require modifications to ensure Year 2000 Compliance. Internal and
external resources are currently being used to test Year 2000 Compliance and
make any additional modifications where required. The identification of needed
modifications and upgrades of all significant internal applications was complete
at December 31, 1998.

In addition, the Company is communicating with others with whom it does
significant business to determine their Year 2000 Compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000
Compliance issues. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted, or that
a failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company.

The total cost to the Company of these Year 2000 Compliance activities
has not been and is not anticipated to be material to its financial position or
results of operations in any given year. Since the Company commenced its
assessment of its Year 2000 Compliance during early 1998, it has expended
approximately $60,000 and estimates additional future costs of approximately

22

$40,000, consisting primarily of software purchases and associated training and
consulting services. In addition, certain employees of the Company have devoted
their time to assessing and implementing the Company's Year 2000 Compliance, the
costs of which have not been separately allocated by the Company. These costs
and the date on which the Company plans to complete the Year 2000 modification
and testing processes are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
from those plans.

The Company is in the process of developing a contingency plan in the
event that any of its systems or the systems of any third party with which it
has a material relationship are not Year 2000 Compliant, and expects to have the
plan complete by August 31, 1999. In the event that the Company is vulnerable to
any such Year 2000 Compliance issue, the worst case scenario could include any
or all of the following:

1) Inability to timely collect payments on Customer Notes;
2) Inability to timely or properly bill customers for resort charges;
3) Reduction in effectiveness of generating tours to sales offices;
4) Inability to purchase goods (including food, beverages and operating
supplies) from existing sources, thereby forcing the Company to use
alternative vendors at potentially less favorable pricing;
5) Inability to process payroll and/or perform other accounting functions on
an efficient basis; and
6) Suspension of some or all operations.

INFLATION

Inflation and changing prices have not had a material impact on the
Company's revenues, operating income and net income during any of the Company's
three most recent fiscal years. However, to the extent inflationary trends
affect short-term interest rates, a portion of the Company's debt service costs
may be affected as well as the rates the Company charges on its Customer Notes.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the information set forth on Index to Consolidated Financial
Statements appearing on page F-1 of this Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

On November 20, 1998, Deloitte & Touche LLP ("D&T") resigned as the
principal independent accountants for the Company. D&T delivered its resignation
at a meeting held with the Audit Committee of the Company's Board of Directors.
Prior to such meeting, the Audit Committee had determined to terminate D&T as a
result of issues relating to the Company's evaluation of the quality of service
provided by D&T.

D&T advised the Audit Committee that it was resigning due to a
disagreement over the proper treatment of the extinguishment by the Company of
certain debt. In September 1998, the Company prepaid a promissory note to an
affiliated party in exchange for the forgiveness of $200,000 of the principal
amount of such note. This transaction was reflected as approximately $200,000 of
income in the Company's income statement for the fiscal quarter ended September
30, 1998. The nature of this transaction was also disclosed in Note 3 to the
Company's financial statements for such period. D&T indicated that its view was
that, because this transaction was with a related party, it should have been
treated as a capital transaction under APB 26. Although the Company believes
that its treatment of this extinguishment of debt is consistent with Paragraph
20 of APB 26, on December 31, 1998, the Company amended its report on Form 10-Q
for the period ended September 30, 1998 to reflect the treatment of this
transaction as a capital transaction.

Neither of D&T's reports on the Company's financial statements for the
last two years contained an adverse opinion or a disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope, or accounting
principles. In addition, during such periods and the period from December 31,
1997 until the date of D&T's resignation, except for the disagreement discussed
in the preceding paragraph, there were no disagreements or "reportable events",
as contemplated by Item 304(a)(1) (iv) and (v), respectively, under Regulation
S-K.

On December 11, 1998, the Company filed an Amendment No. 1 to its
Report on Form 8-K dated November 20, 1998 for the purpose of filing a letter
from D&T in which D&T indicated that it disagreed with certain portions of the
foregoing description of the events related to its resignation. Copies of the
Form 8-K and the Amendment thereto are publicly available.

23

As reported on the Company's Form 8-K filed with the Securities and
Exchange Commission on February 16, 1999, on February 8, 1999, the Company
engaged Hansen, Barnett & Maxwell, a professional corporation ("HB&M"), as its
principal accountant to audit the Company's financial statements for the year
ended December 31, 1998. Prior to its engagement, the Company had not consulted
HB&M with respect to the application of accounting principles to a specified
transaction or any matter that was the subject of a disagreement or a reportable
event (as described in Item 301(a)(1)(v) of Regulation S-K). The Company has
authorized D&T to respond fully to inquiries of the successor accountant
concerning the subject matter of the disagreement discussed above.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information in response to this Item is set forth in the Company's
Definitive Proxy Statement relating to the 1999 Annual Meeting of Shareholders
and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information in response to this Item is set forth in the Company's
Definitive Proxy Statement relating to the 1999 Annual Meeting of Shareholders
and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information in response to this Item is set forth in the Company's
Definitive Proxy Statement relating to the 1999 Annual Meeting of Shareholders
and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information in response to this Item is set forth in the Company's
Definitive Proxy Statement relating to the 1999 Annual Meeting of Shareholders
and is incorporated herein by reference.

24

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) CONSOLIDATED FINANCIAL STATEMENTS Page or Method of Filing
--------------------------------- ------------------------

(i) Consolidated Financial Statements and Pages F-3 through F-21
Notes to Consolidated Statements of
the Registrant, including Consolidated
Balance Sheets as of December 31,
1998 and 1997 and Consolidated
Statements of Operations,
Shareholders' Equity and Cash
Flows for each of the three years
ended December 31, 1998, 1997
and 1996.

(ii) Report of Hansen, Barnett & Maxwell,
a professional corporation Page F-2

(a)(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

Schedules other than those mentioned above are omitted because the
conditions requiring their filing do not exist or because the required
information is given in the financial statements, including the notes
thereto.

(a)(3) EXHIBITS

The Exhibit Index attached to this report is hereby incorporated by
reference.

(b) REPORTS ON FORM 8-K

The Company filed a report on Form 8-K on November 30, 1998 which
reported the resignation of Deloitte & Touche LLP as the Company's principal
independent accountants and filed Amendment No. 1 to that report on Form 8-K on
December 11, 1998 to file as an exhibit a letter dated December 8, 1998 to the
Securities and Exchange Commission from Deloitte & Touche LLP as well as the
Company's response to such letter. See "Item 9. Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure."

25

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 13th day of
April, 1999.

ILX Resorts Incorporated,
an Arizona corporation
(Registrant)

By: /s/ Joseph P. Martori
-----------------------------
Joseph P. Martori
Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signatures Title Date
---------- ----- ----

/s/ Joseph P. Martori Chairman of the Board and April 13, 1999
- ------------------------------ Chief Executive Officer
Joseph P. Martori (principal executive officer)

/s/ Nancy J. Stone President, Chief Operating April 13, 1999
- ------------------------------ Officer and Director
Nancy J. Stone

/s/ Stephen W. Morgan Senior Vice President and April 13, 1999
- ------------------------------ Chief Financial Officer
Stephen W. Morgan (principal financial and
accounting officer)

/s/ Edward S. Zielinski Executive Vice President April 13, 1999
- ------------------------------ and Director
Edward S. Zielinski

/s/ Steven R. Chanen Director April 13, 1999
- ------------------------------
Steven R. Chanen

/s/ Joseph A. Leonetti Director April 13, 1999
- ------------------------------
Joseph A. Leonetti

/s/ James W. Myers Director April 13, 1999
- ------------------------------
James W. Myers

/s/ Patrick J. McGroder III Director April 13, 1999
- ------------------------------
Patrick J. McGroder III

26

INDEX TO FINANCIAL STATEMENTS

The following financial statements include the Company's audited statements for
fiscal year 1998 and unaudited statements for fiscal years 1997 and 1996. The
1998 statements have been audited by Hansen, Barnett & Maxwell, a professional
corporation. The 1996 and 1997 statements were previously audited by another
accounting firm. The predecessor auditor's report on the 1996 and 1997 financial
statements dated March 6, 1998 was unqualified; however, the predecessor auditor
has not consented to release its report for inclusion in this filing. The
Company intends to have the 1996 and 1997 years reaudited as soon as practical
and amend this 1998 Report on Form 10-K to include the reaudited information as
soon as possible.

Independent Auditors' Report F-2

Financial Statements:

Consolidated Balance Sheets at December 31, 1997 (unaudited) and 1998 F-3

Consolidated Statements of Operations for the years ended
December 31, 1996 (unaudited), 1997 (unaudited), and 1998 F-4

Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1996 (unaudited), 1997
(unaudited), and 1998 F-5

Consolidated Statements of Cash Flows for the years ended
December 31, 1996 (unaudited), 1997 (unaudited), and 1998 F-6

Notes to Consolidated Financial Statements F-7

F-1

HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS

(801) 532-2200
MEMBER OF AICPA DIVISION OF FIRMS Fax (801) 532-7944
MEMBER OF SECPS 345 East Broadway, Suite 200
MEMBER OF SUMMIT INTERNATIONAL ASSOCIATES Salt Lake City, Utah 84111-2693

INDEPENDENT AUDITORS' REPORT

Shareholders of ILX Resorts Incorporated

We have audited the accompanying consolidated balance sheet of ILX Resorts
Incorporated and Subsidiaries (the "Company") as of December 31, 1998 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
December 31, 1998 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.

HANSEN, BARNETT & MAXWELL

Salt Lake City, Utah
March 27, 1999

F-2

ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS
December 31,
1997 1998
(unaudited)
------------ ------------
Cash and cash equivalents $ 3,226,038 $ 3,196,710
Notes receivable, net (Notes 2, 6, 9 and 13) 15,861,621 19,559,396
Resort property held for Vacation Ownership
Interest sales (Notes 2, 3, 9 and 17) 14,666,658 20,834,225
Resort property under development (Notes 5 and 9) 2,943,936 485,933
Land held for sale 1,557,498 1,593,885
Deferred assets (Note 6) 289,009 262,877
Property and equipment , net (Notes 7, 9 and 17) 3,472,899 4,006,991
Deferred income taxes (Note 8) 304,430 268,771
Other assets 1,400,224 1,788,470
------------ ------------
TOTAL ASSETS $ 43,722,313 $ 51,997,258
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 2,830,375 $ 1,186,088
Accrued and other liabilities 2,220,566 2,048,599
Notes payable (Note 9) 19,884,479 22,107,444
Notes payable to affiliates (Notes 10 and 16) 2,166,100 894,078
------------ ------------
Total liabilities 27,101,520 26,236,209
------------ ------------
MINORITY INTERESTS (Note 11) -- (3,271)
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 12 and 18)

SHAREHOLDERS' EQUITY (Notes 13, 14 and 15):
Preferred stock, $10 par value; 10,000,000
shares authorized; 380,468 shares issued
and outstanding liquidation preference
of $3,804,680 1,384,891 1,384,891

Common stock, no par value; 30,000,000
shares authorized; 2,692,433 and 4,332,533
shares issued (Note 1) 10,267,667 19,818,183

Treasury stock, at cost, 103,060 and 339,640
shares, respectively (652,587) (1,273,843)

Additional paid in capital 79,450 279,450

Retained earnings 5,541,372 5,555,639
------------ ------------

Total shareholders' equity 16,620,793 25,764,320
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 43,722,313 $ 51,997,258
============ ============

See notes to consolidated financial statements

F-3

ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,

1996 1997 1998
(unaudited) (unaudited)
------------ ------------ ------------

TIMESHARE REVENUES:
Sales of Vacation Ownership Interests $ 19,639,194 $ 23,980,707 $ 22,470,215
Resort operating revenue 10,944,533 10,919,831 12,215,791
Interest income 997,500 1,510,208 2,059,187
------------ ------------ ------------
Total timeshare revenues 31,581,227 36,410,746 36,745,193
------------ ------------ ------------
COST OF SALES AND OPERATING EXPENSES:
Cost of Vacation Ownership
Interests sold 3,101,023 3,218,850 3,112,550
Cost of resort operations 10,406,692 10,473,093 11,884,115
Sales and marketing 10,485,847 13,894,731 15,285,515
General and administrative 2,304,373 2,974,835 3,377,937
Provision for doubtful accounts 590,653 702,417 663,666
Depreciation and amortization 476,467 455,185 369,155
------------ ------------ ------------
Total cost of sales and
operating expenses 27,365,055 31,719,111 34,692,938
------------ ------------ ------------

Timeshare operating income 4,216,172 4,691,635 2,052,255

Income from land and other net 50,304 28,514 126,377
------------ ------------ ------------
Total operating income 4,266,476 4,720,149 2,178,632
Gain on sale of property (Note 7) 356,000
Interest expense (Notes 9 and 10) (1,975,110) (2,084,969) (2,074,139)
------------ ------------ ------------
Income before income taxes and
minority interests 2,291,366 2,991,180 104,493
Income tax (expense) benefit (Note 8) (678,822) (1,145,000) (45,500)
------------ ------------ ------------
Income before minority interests 1,612,544 1,846,180 58,993

Minority interests (Note 11) (561,428) (178,307) 3,271
------------ ------------ ------------

NET INCOME $ 1,051,116 $ 1,667,873 $ 62,264
============ ============ ============
NET INCOME PER SHARE (Notes 1 and 4):
Basic $ 0.38 $ 0.60 $ 0.00
============ ============ ============
Diluted $ 0.37 $ 0.59 $ 0.00
============ ============ ============

See notes to consolidated financial statements

F-4

ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Preferred Stock Common Stock
------------------- ----------------------
Shares Amount Shares Amount
------ ------ ------ ------

BALANCES, JANUARY 1, 1996 411,483 $1,515,134 2,525,151 $ 9,322,375
(unaudited)
Net income
Issuance of common stock 74,500 423,875
Exchange of preferred stock
for common stock (13,515) (37,301) 4,505 37,301
Issuance of cumulative shares
for dividend arrearage 702 5,187
Exchange of preferred stock
for lodging certificates (824) (8,240)
Redemption of preferred stock (5,035) (50,350)
Payment of dividends (47,969) (47,969)
Acquisition of treasury shares
------- ---------- --------- -----------
BALANCES, DECEMBER 31, 1996 392,109 1,419,243 2,604,858 9,788,738
(unaudited)
Net income
Issuance of common stock 83,000 443,681
Exchange of preferred stock
for common stock (11,334) (31,282) 3,778 31,282
Issuance of cumulative shares
for dividend arrearage 797 3,966
Exchange of preferred stock
for lodging certificates (307) (3,070)
Payment of dividends
Acquisition of treasury shares,
net of reissuances
------- ---------- --------- -----------
BALANCES, DECEMBER 31, 1997 380,468 1,384,891 2,692,433 10,267,667
(unaudited)
Net income
Issuance of common stock 1,640,100 9,550,516
Payment of dividends
Acquisition of treasury shares,
net of reissuances
Gain on extinguishment of note
payable to affiliate
------- ---------- --------- -----------
BALANCES, DECEMBER 31, 1998 380,468 $1,384,891 4,332,533 $19,818,183
======= ========== ========= ===========

Treasury Stock Additional
-------------------- Paid In Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
BALANCES, JANUARY 1, 1996 (4,000) $ (25,032) $ 35,190 $2,927,435 $13,775,102
(unaudited)
Net income 1,051,116 1,051,116
Issuance of common stock 423,875
Exchange of preferred stock
for common stock
Issuance of cumulative shares
for dividend arrearage (5,207) (20)
Exchange of preferred stock
for lodging certificates 4,760 (3,480)
Redemption of preferred stock 38,350 (12,000)
Payment of dividends (47,969) (47,969)
Acquisition of treasury shares (2,000) (11,504) (11,504)
-------- ----------- -------- ---------- -----------
BALANCES, DECEMBER 31, 1996 (6,000) (36,536) 78,300 3,925,375 15,175,120
(unaudited)
Net income 1,667,873 1,667,873
Issuance of common stock 443,681
Exchange of preferred stock
for common stock
Issuance of cumulative shares
for dividend arrearage (3,982) (16)
Exchange of preferred stock
for lodging certificates 1,150 (1,920)
Payment of dividends (47,894) (47,894)
Acquisition of treasury shares,
net of reissuances (97,060) (616,051) (616,051)
-------- ----------- -------- ---------- -----------
BALANCES, DECEMBER 31, 1997 (103,060) (652,587) 79,450 5,541,372 16,620,793
(unaudited)
Net income 62,264 62,264
Issuance of common stock 9,550,516
Payment of dividends (47,997) (47,997)
Acquisition of treasury shares,
net of reissuances (236,580) (621,256) (621,256)
Gain on extinguishment of note
payable to affiliate 200,000 200,000
-------- ----------- -------- ---------- -----------
BALANCES, DECEMBER 31, 1998 (339,640) $(1,273,843) $279,450 $5,555,639 $25,764,320
======== =========== ======== ========== ===========

See notes to consolidated financial statements

F-5

ILX RESORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,

1996 1997 1998
(unaudited) (unaudited)
----------- ----------- ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,051,116 $ 1,667,873 $ 62,264
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Gain on sale of property -- (356,000) --
Undistributed minority interest 531,370 178,307 (3,271)
Deferred income taxes 708,368 874,223 35,659
Provision for doubtful accounts 590,653 702,417 663,666
Depreciation and amortization 476,467 455,185 369,155
Amortization of guarantee fees 72,100 92,250 40,915
Change in assets and liabilities:
Decrease (increase) in resort property
held for Vacation Ownership Interest sales 532,072 580,929 (6,167,567)
Decrease (increase) in resort property
under development (90,626) (1,734,230) 2,458,003
Decrease (increase) in land held for sale (2,309) (10,005) (36,387)
Decrease (increase) in other assets 356,893 235,356 (406,005)
Increase (decrease) in accounts payable (3,038) 519,775 (1,644,287)
Increase (decrease) in accrued and other
liabilities (46,306) (315,105) 25,860
Increase (decrease) in due to affiliates (200,914) (82,043) --
----------- ----------- ------------
Net cash provided by (used in) operating activities 3,975,846 2,808,932 (4,601,995)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable, net (3,550,886) (4,534,235) (4,361,441)
Decrease (increase) in deferred assets 66,050 (67,913) (14,783)
Purchases of property and equipment, net (35,577) (1,057,852) (885,488)
Net cash paid for minority interest -- (820,000) --
----------- ----------- ------------
Net cash used in investing activities (3,520,413) (6,480,000) (5,261,712)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 5,693,139 9,794,082 15,019,952
Principal payments on notes payable (5,416,266) (6,058,556) (12,796,987)
Principal payments on notes payable to affiliates (370,625) (271,187) (1,113,622)
Distributions to minority partners (937,534) (140,000)
Net proceeds from issuance of common stock 423,875 98,193 9,394,289
Acquisition of treasury stock and other (11,524) (579) (621,256)
Redemption of preferred stock (12,000)
Preferred stock dividend payments (47,969) (47,894) (47,997)
----------- ----------- ------------
Net cash provided by (used in) financing activities (678,904) 3,374,059 9,834,379
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (223,471) (297,009) (29,328)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 3,746,518 3,523,047 3,226,038
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,523,047 $ 3,226,038 $ 3,196,710
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Notes payable issued to extinguish
accrued liabilities $ -- $ 2,400,000 --
Notes payable assumed by buyer of property
and equipment (180,000) (2,143,000) --
Notes payable issued or assumed to purchase
assets or minority interest 3,080,278 1,975,000 --
Treasury stock received for sale of property
and equipment -- (625,000) --
Common stock issued to acquire assets or in
exchange for indebtedness -- 355,000 --

See notes to consolidated financial statements

F-6

ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ALL AMOUNTS AND REFERENCES RELATED TO DECEMBER 31, 1996
AND DECEMBER 31, 1997 ARE UNAUDITED

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND BUSINESS ACTIVITIES

The consolidated financial statements include the accounts of ILX
Resorts Incorporated, formerly ILX Incorporated, and its wholly owned and
majority-owned subsidiaries ("ILX" or the "Company"). All significant
intercompany transactions and balances have been eliminated in consolidation.

The Company's significant business activities include developing,
operating, marketing and financing ownership interests ("Vacation Ownership
Interests") in resort properties located in Arizona, Colorado, Florida, Indiana
and Mexico. The Company's operations also include marketing of skin and hair
care products which are not considered significant to resort operations.

REVERSE STOCK SPLIT

On January 9, 1998, the Company's shareholders approved an amendment to
the Company's Articles of Incorporation to effect a one-for-five reverse stock
split of the Company's issued and outstanding shares of common stock. The
reverse stock split has been retroactively reflected in the accompanying
financial statements.

RESORT PROPERTY HELD FOR VACATION OWNERSHIP INTEREST SALES

Resort property held for Vacation Ownership Interest sales is recorded
at the lower of historical cost less amounts charged to cost of Vacation
Ownership Interests sold or marketed. As Vacation Ownership Interests are sold,
the Company amortizes to cost of sales the average carrying value of the
property plus estimated future additional costs related to remodeling and
construction.

Land held for sale is recorded at the lower of cost or fair value less
cost to sell, consistent with the Company's intention to liquidate these
properties.

REVENUE RECOGNITION

Revenue from sales of Vacation Ownership Interests is recognized in
accordance with Statement of Financial Accounting Standard No. 66, Accounting
for Sales of Real Estate ("SFAS 66"). No sales are recognized until such time as
a minimum of 10% of the purchase price has been received in cash, the statutory
rescission period has expired, the buyer is committed to continued payments of
the remaining purchase price and the Company has been released of all future
obligations for the Vacation Ownership Interest. Resort operating revenue
represents daily room rentals and revenues from food and other resort services.
Such revenues are recorded as the rooms are rented or the services are
performed.

PROPERTY AND EQUIPMENT, NET

Property and equipment are stated at cost and are depreciated on the
straight-line method over their respective estimated useful lives ranging from 3
to 30 years. Property and equipment under capitalized leases are stated at the
lesser of fair value or the present value of future minimum lease payments as of
the date placed in service, and amortized on the straight-line method over the
term of the lease.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash equivalents are liquid investments with an original maturity of
three months or less. The following summarizes interest paid, income taxes paid
and capitalized interest to resort property under development:

YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1997 1998
---- ---- ----
Interest paid $1,746,000 $2,222,000 $2,121,000
Income taxes paid 723,000 78,000 12,000
Capitalized interest 95,000 213,000 357,000

F-7

ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ALL AMOUNTS AND REFERENCES RELATED TO DECEMBER 31, 1996
AND DECEMBER 31, 1997 ARE UNAUDITED

ACCOUNTING MATTERS

In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), which was effective for the Company
beginning January 1, 1996. SFAS 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
compensation cost to be measured based on the fair value of the equity
instrument awarded. Companies are permitted, however, to continue to apply APB
Opinion No. 25, which recognizes compensation cost based on the intrinsic value
of the equity instrument awarded. The Company intends to continue to apply APB
Option No. 25 to any future stock options that may be granted to employees. See
Note 15 for related disclosure.

In February 1997, the Financial Accounting Standards Board issued SFAS
No. 129, "Disclosure of Information about Capital Structure" ("SFAS 129"), which
was effective for financial statements for periods ending after December 15,
1997 and establishes standards for disclosing information about an entity's
capital structure. SFAS 129 was adopted by the Company in 1997. There were no
significant effects on the Company's disclosures about its capital structure, as
that term is defined in SFAS 129, in the year ended December 31, 1997 or
December 31, 1998.

In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" ("SFAS 130"), which was effective for
financial statements for periods beginning after December 15, 1997 and
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. The Company adopted SFAS 130 in 1998.
There were no items of other comprehensive income, as that term is defined in
SFAS 130, in the year ended December 31, 1997 or December 31, 1998.

In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"), which is effective for fiscal years beginning after December 15, 1997 and
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The Company has a single segment in the timeshare resort industry.
Revenue from products and services are reflected on the income statement under
Sales of Vacation Ownership Interests and Resort Operating Revenue.

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which is effective for the Company in 2000. SFAS No. 133 requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The standard also provides
specific guidance for accounting for derivatives designated as hedging
instruments. The Company is currently evaluating what impact this standard will
have on its financial statements.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

RECLASSIFICATIONS

The financial statements for prior periods have been reclassified to be
consistent with the current period financial statement presentation.

F-8

ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ALL AMOUNTS AND REFERENCES RELATED TO DECEMBER 31, 1996
AND DECEMBER 31, 1997 ARE UNAUDITED

NOTE 2. NOTES RECEIVABLE, NET

Notes receivable consist of the following:
DECEMBER 31,
-------------------------
1997 1998
---- ----
Vacation Ownership Interest notes receivable $14,522,191 $19,683,949
Holdbacks by financial institutions 4,091,294 3,150,601
Other receivables 199,164 199,164
Allowance for possible credit losses (2,951,028) (3,474,318)
----------- -----------

$15,861,621 $19,559,396
=========== ===========

Notes generated from the sale of Vacation Ownership Interests generally
bear interest at annual rates ranging from 13% to 16% and have terms of five to
ten years. The notes are collateralized by deeds of trust on the Vacation
Ownership Interests sold.

At December 31, 1998, the Company had agreements with a financial
institution for commitments totaling $20 million under which the Company could
sell certain of its Customer Notes. In March 1999, the Company entered into a
new agreement which increased the commitment amount to $40 million, reduced the
purchase rate and expanded the scope to include Customer Notes generated from
sales of Vacation Ownership Interests in additional ILX properties and Premiere
Vacation Club. The agreements provide for sales on a recourse basis with a
percentage of the amount sold held back by the respective financial institution
as additional collateral. Customer Notes may be sold at discounts or premiums to
the principal amount in order to yield the consumer market rate, as defined by
the financial institution. At December 31, 1998, $7.8 million of the $20 million
in commitments was available to the Company.

The Company also has financing commitments aggregating $43.5 million
whereby the Company may borrow against notes receivable pledged as collateral.
These borrowings bear interest at prime plus 1.5% to prime plus 3% and expire at
various dates from 2002 through 2003. At December 31, 1998, approximately $37.0
million is available under these commitments.

At December 31, 1997 and 1998, the Company had approximately $24
million and $21 million, respectively, in outstanding notes receivable sold on a
recourse basis. Portions of the notes receivable are secured by deeds of trust
on Los Abrigados Resort & Spa ("Los Abrigados"), Varsity Clubs of America-South
Bend ("VCA-South Bend") and Varsity Clubs of America - Tucson ("VCA-Tucson").

At December 31, 1998, notes receivable in the amount of approximately
$348,203 have been contributed to the Company's Series A Preferred Stock sinking
fund and therefore their use is restricted (Note 13).

The following summarizes activity in the allowance for possible credit
losses:

YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---- ---- ----
Beginning balance $2,410,900 $2,569,997 $2,951,028
Provision for doubtful accounts 590,653 702,417 663,666
Amounts written off (431,556) (321,386) (140,376)
---------- ---------- ----------

Ending balance $2,569,997 $2,951,028 $3,474,318
========== ========== ==========

The Company considers all notes receivable past due in excess of 90
days to be delinquent. At December 31, 1998, $4.7 million in principal or $3.5
million net of the historical costs of the underlying property which would be
recovered in the event of noncollectibility, or 12% and 8.9%, respectively, of
the retained notes and notes previously sold, which are recourse to the Company,
were more than 90 days past due.

At December 31, 1997 and 1998, the above allowance includes $480,000
and $420,000 respectively, for notes sold with recourse.

F-9

ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ALL AMOUNTS AND REFERENCES RELATED TO DECEMBER 31, 1996
AND DECEMBER 31, 1997 ARE UNAUDITED

NOTE 3. RESORT PROPERTY HELD FOR VACATION OWNERSHIP INTEREST SALES

Resort property held for Vacation Ownership Interest sales consists of
the following:
DECEMBER 31,
------------------------------
1997 1998
---- ----
Premiere Vacation Club $ -- $ 8,837,747
VCA-Tucson -- 3,922,161
VCA-South Bend 4,421,308 2,773,344
Los Abrigados 3,826,206 1,884,384
Golden Eagle Resort 2,433,410 1,380,103
Kohl's Ranch Lodge 2,054,609 758,213
Roundhouse Resort 715,305 748,755
The Inn at Los Abrigados 1,168,320 489,618
Ventura Resort 39,000 39,000
Costa Vida Resort 8,500 900
---------- -----------

$14,666,658 $20,834,225
=========== ===========

Varsity Clubs of America Incorporated ("Varsity Clubs"), a wholly-owned
subsidiary of ILX, intends to develop lodging accommodations in areas located
near major university campuses, and to market those lodging accommodations,
including interval ownership interests, to alumni and other sport enthusiasts.
Construction of the second Varsity Clubs facility, located near the University
of Arizona, in Tucson, commenced in 1997 and was completed in July 1998. At
December 31, 1997 the costs of construction to date were recorded as resort
property under development.

The Company acquired approximately one-half acre of improved property
now known as the Inn at Los Abrigados, adjacent to Los Abrigados, in September
1996 for a purchase price of $750,000, consisting of a $185,862 cash down
payment and a $564,138 first deed of trust. The Company made improvements to the
property through late November 1997 when it commenced resort operations.
Vacation Ownership Interest sales began in February 1998.

In December 1997, the Company acquired the development rights at the
Roundhouse Resort, an existing 59-unit Vacation Ownership Interest resort with
approximately five acres of developable land located in Pinetop/Lakeside,
Arizona. The purchase price of $700,000 was financed by the issuance of a note
payable. The Company intends to construct additional Vacation Ownership
Interests on the property. The initial planning and development for such
expansion began in 1998.

In January 1998 the Company recorded in Maricopa County, Arizona its
proprietary Premiere Vacation Club Membership Plan and in May 1998 annexed a
total of 5,000 Vacation Ownership Interests into the Club and received
Department of Real Estate approval in the State of Arizona to commence selling
Vacation Ownership Interests in the Premiere Vacation Club. The 5,000 Vacation
Ownership Interests annexed into the Club consisted of 1,035 Vacation Ownership
Interests in Los Abrigados Resort & Spa, 265 Vacation Ownership Interests in The
Inn at Los Abrigados, 1,315 Vacation Ownership Interests in Kohl's Ranch Lodge,
565 Vacation Ownership Interests in Golden Eagle Resort, 695 Vacation Ownership
Interests in VCA-South Bend and 1,125 Vacation Ownership Interests in
VCA-Tucson.

F-10

ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ALL AMOUNTS AND REFERENCES RELATED TO DECEMBER 31, 1996
AND DECEMBER 31, 1997 ARE UNAUDITED

NOTE 4. NET INCOME PER SHARE

In accordance with SFAS No. 128, "Earnings Per Share," the following
presents the computation of basic and diluted net income per share:

BASIC NET INCOME PER SHARE

YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---- ---- ----
Net income $1,051,116 $1,667,873 $ 62,264
Less: Series A preferred stock dividends (47,969) (47,894) (47,997)
Series C convertible preferred
stock cumulation share Dividends (29,047) (29,052) (20,828)
---------- ---------- ----------
Net income available to common
stockholders - basic $ 974,100 $1,590,927 $ (6,561)
========== ========== ==========
Weighted average shares of common stock
outstanding - basic 2,566,132 2,635,418 3,717,835
========== ========== ==========
Basic net income per share $ 0.38 $ 0.60 $ 0.00
========== ========== ==========

DILUTED NET INCOME PER SHARE
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---- ---- ----
Net income $1,051,116 $1,667,873 $ 62,264
Less: Series A preferred stock dividends (47,969) (47,894) (47,997)
---------- ---------- ----------
Net income available to common
stockholders - diluted $1,003,147 $1,619,979 $ 14,267
========== ========== ==========
Weighted average shares of common
stock outstanding 2,566,132 2,635,418 3,717,835
Add: Convertible preferred stock (Series B
and Series C) dilutive effect 116,827 111,875 110,541
---------- ---------- ----------
Weighted average shares of common stock
outstanding - Diluted 2,682,959 2,747,293 3,828,376
========== ========== ==========
Diluted net income per share $ 0.37 $ 0.59 $ 0.00
========== ========== ==========

Stock options to purchase 153,200 shares of common stock at prices
ranging from $6.25 per share to $8.125 per share were outstanding at December
31, 1998 but were not included in the computation of diluted net income per
share because the options' exercise prices were greater than the average market
price of common shares. These options expire at various dates between 1999 and
2004.

NOTE 5. RESORT PROPERTY UNDER DEVELOPMENT

Resort property under development totaling $2,943,936 at December 31,
1997 was reclassified to resort property held for Vacation Ownership Interest
sales in 1998 upon completion of construction of Varsity Clubs of America -
Tucson Chapter. The resort opened to revenue paying guests in July 1998.

NOTE 6. DEFERRED ASSETS

As part of the acquisition of Los Abrigados, certain affiliates of the
Company guaranteed the underlying mortgage on the resort. As partial
consideration for their guarantee, the affiliates earned a $780,000 fee. The fee
is amortized to expense and was payable to the affiliates at the rate of $100
per Los Abrigados Vacation Ownership Interest sold. At December 31, 1997 and
1998, deferred assets included $195,150 and $154,235, respectively, of guarantee
fees, net of accumulated amortization.

As additional consideration for the guarantee, the affiliates were
entitled to receive a percentage of certain amounts held back on the sale of
notes receivable by a financial institution as collateral. The amount was paid
as the amounts held back were collected from the financial institution.

F-11

ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ALL AMOUNTS AND REFERENCES RELATED TO DECEMBER 31, 1996
AND DECEMBER 31, 1997 ARE UNAUDITED

NOTE 7. PROPERTY AND EQUIPMENT, NET

Property and equipment consists of the following:

DECEMBER 31,
-------------------------------
1997 1998
---- ----
Land $ 379,704 $ 379,704
Buildings and improvements 3,428,956 4,061,056
Leasehold improvements 5,719 10,261
Furniture and fixtures 498,645 500,558
Office equipment 318,020 330,808
Computer equipment 228,812 486,092
Vehicles 56,279 56,279
----------- -----------
4,916,135 5,824,758
Accumulated depreciation (1,443,236) (1,817,767)
----------- -----------
$ 3,472,899 $ 4,006,991
=========== ===========

In March 1996, the Company, through a subsidiary, became the general
partner of the limited partnership that owns Lomacasi Cottages in Sedona,
Arizona, a 5.27-acre property approximately one mile from Los Abrigados. At
December 31, 1996, property and equipment, net of accumulated depreciation,
included $2,162,280 related to Lomacasi Cottages, which served as collateral for
two notes payable aggregating $2,156,842 at December 31, 1996. In December 1997,
the Company sold its general partner interest in Lomacasi Cottages to a
non-affiliated buyer. In connection with the sale, the buyer assumed the notes
payable and the Company received as consideration 100,000 shares of its common
stock valued at $625,000, resulting in a gain on the sale of $356,000.

NOTE 8. INCOME TAXES

Deferred income tax assets (liabilities) included in the consolidated
balance sheets consist of the following:

DECEMBER 31,
--------------------------
1997 1998
---- ----
Deferred Tax Assets:
Nondeductible accruals for uncollectible
receivables $ 983,000 $1,319,000
Tax basis in excess of book on resort property
held for Vacation Ownership Interest sales 125,000 215,000
Deferred startup expenses for tax purposes 181,000 60,500
Intangible assets capitalized for tax purposes 20,000 24,000
Minority interest allocation in excess of tax 390,000 --
Alternative minimum tax credit 247,000 369,000
Net operating loss carryforwards 2,546,000 2,185,000
Other 177,000 231,500
---------- -----------
Total deferred tax assets 4,669,000 4,404,000
---------- -----------
Deferred Tax Liabilities:
Installment receivable gross profit deferred
for tax purposes (4,288,000) (4,076,000)
Tax amortization of loan fees in excess of book (77,000) (59,000)
----------- -----------
Total deferred tax liabilities (4,365,000) (4,135,000)
----------- -----------
Deferred income taxes $ 304,000 $ 269,000
=========== ===========

F-12

ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ALL AMOUNTS AND REFERENCES RELATED TO DECEMBER 31, 1996
AND DECEMBER 31, 1997 ARE UNAUDITED

A reconciliation of the income tax expense (benefit) and the amount
that would be computed using statutory federal income tax rates is as follows:

YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
---- ---- ----
Federal, computed on income before minority
interest and income taxes $ 779,000 $1,017,000 $ 35,528
Minority interest (191,000) (60,000) --
State, computed on income after minority
interest and before income taxes 91,000 169,000 6,500
Deferred tax adjustment -- -- --
Decrease in valuation allowance -- -- --
Other -- 19,000 3,472
--------- ---------- --------

Income tax expense (benefit) $ 679,000 $1,145,000 $ 45,500
========= ========== ========

The Company reports substantially all Vacation Ownership Interest sales
that it finances on the installment method for Federal income tax purposes.
Under the installment method, the Company does not recognize income on the
financed portion of sales of Vacation Ownership Interests, until the installment
payments on customer receivables are received by the Company or the customer
receivables are sold by the Company. Interest will be imposed, however, on the
amount of tax attributable to the installment payments for the period beginning
on the date of sale and ending on the date the related tax is paid. If the
Company is otherwise not subject to tax in a particular year, no interest is
imposed since the interest is based on the amount of tax paid in that year. The
consolidated financial statements do not contain an accrual for any interest
expense that would be paid on the deferred taxes related to the installment
method. The amount of interest expense is not estimable as of December 31, 1998.

The Company is subject to Alternative Minimum Tax ("AMT") as a result
of the deferred income that results from the installment sales treatment of
vacation ownership interest sales for regular tax purposes. The AMT liability
creates a deferred tax asset that can be used to offset any future tax liability
from regular Federal income tax. This deferred tax asset has an unlimited
carryover period.

In 1994, due to the profitability of Los Abrigados, the improvement in
the Arizona real estate market and the development of tax strategies, which
include the acquisition by Genesis of Vacation Ownership Interests in resort
properties that have historically been sold on a profitable basis, it was
concluded that more likely than not a portion of the Genesis net operating loss
("NOL") carryforwards and the remainder of Los Abrigados tax benefits would be
utilized. Accordingly, the valuation allowance was reduced in 1994. In 1995, due
to the continued expansion and profitability of Vacation Ownership Interests
activity it was determined that the balance of the Genesis NOLs would be
utilized and the remaining valuation allowance was eliminated.

At December 31, 1998, the Company, excluding its Genesis subsidiary,
had NOL carryforwards of approximately $4,264,000, which expire in 2001 through
2012. At December 31, 1998, Genesis had federal NOL carryforwards of
approximately $1,725,000 which are limited as to usage because they arise from
built in losses of an acquired company. In addition, such losses can only be
utilized through the earnings of Genesis and are limited to a maximum of
$189,000 per year. To the extent the entire $189,000 is not utilized in a given
year, the difference may be carried forward to future years. Any unused Genesis
NOLs will expire in 2008.

In addition, Section 382 of the Internal Revenue Code imposes
additional limitations on the utilization of NOLs by a corporation following
various types of ownership changes which result in more than a 50% change in
ownership of a corporation within a three year period. Such changes may occur as
a result of new common stock issuances by the Company or changes occurring as a
result of filings with the Securities and Exchange Commissions on Schedule 13D
and 13G by holders of more than 5% of the Common Stock, whether involving the
acquisition or disposition of common stock. If such a subsequent change occurs,
the limitations of Section 382 would apply and may limit or deny the future
utilization of the net operating loss by the Company, which could result in the
Company paying substantial additional federal and state taxes.

F-13

ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ALL AMOUNTS AND REFERENCES RELATED TO DECEMBER 31, 1996
AND DECEMBER 31, 1997 ARE UNAUDITED

NOTE 9. NOTES PAYABLE

Notes payable consist of the following:

December 31,
----------------------------
1997 1998
---- ----
Construction note payable, collateralized by $3,111,924 $ 5,843,506
deed of trust on VCA-Tucson, interest at 12%
plus $100 per annual Tucson Vacation
Ownership Interest sold, due through 2001

Note payable, collateralized by consumer -- 3,870,383
notes receivable, interest at prime plus 1.5%
(9.25% at December 31, 1998) due through 2007

Obligations under capital leases with 686,760 1,514,146
interest at 10% (Note 17)

Note payable, collateralized by deed of -- 1,500,000
trust, interest at 10%, due through 2003

Note payable, collateralized by consumer 2,052,473 1,414,837
notes receivable and deed of trust on Kohl's
Ranch Lodge, interest at prime plus 4%
(11.75% at December 31, 1998), due through
2004

Lines of credit aggregating $2,000,000, 500,000 1,200,000
interest at prime plus 1.5% to prime plus
2.0%, due through 1999 (9.25% to 9.75% at
December 31, 1998)

Note payable, collateralized by consumer 262,358 1,038,296
notes receivable, interest at prime plus 3%
(10.75% at December 31, 1998), due through
2001

Note payable, collateralized by deed of trust 1,362,120 1,020,000
on Kohl's Ranch Lodge, interest at prime plus
4% (11.75% at December 31, 1998), due through
2000

Note payable, collateralized by deed of trust 1,293,167 991,483
on Los Abrigados, interest at prime plus 2.5%
(10.25% at December 31, 1998), due through
2003

Note payable, collateralized by notes 1,235,673 711,767
receivable and surety deed of trust on Golden
Eagle Resort, interest at prime plus 4%
(11.75% at December 31, 1998), due through
2002

Note payable, collateralized by LAP 675,000 621,011
partnership interest, interest at 8%, due
through 2002

Note payable, collateralized by consumer 1,349,990 500,000
notes receivable and an assignment of the
Company's general partnership interest in
LAP, interest at 10%, due through 2003

Note payable, collateralized by deed of 437,503 420,318
trust, interest at 8.5%, due through 2002

Note payable, collateralized by partnership -- 400,080
interest, interest at prime plus 1.5% (9.25%
at December 31, 1998), due through 2002

Note payable, collateralized by deed of trust -- 333,889
on Los Abrigados, the Inn at Los Abrigados
and Premiere Vacation Club, interest at prime
plus 2.5% (10.25% at December 31, 1998), due
through 2005

Note payable, collateralized by furniture, -- 270,973
fixtures and equipment at VCA - South Bend,
interest at 9.5%, due through 2001

Note payable, collateralized by deed of -- 246,301
trust, interest at 8.5%, due through 2003

Note payable, collateralized by second deed 156,526 66,526
of trust on Kohl's Ranch Lodge, interest at
8%, due through 2000

Note payable, collateralized by deed of -- 63,897
trust, interest at 8.5%, due through 2003

F-14

ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ALL AMOUNTS AND REFERENCES RELATED TO DECEMBER 31, 1996
AND DECEMBER 31, 1997 ARE UNAUDITED

December 31,
----------------------------
1997 1998
---- ----

Other 110,959 80,031

Notes payable repaid or extinguished in 1998 6,650,026 --
----------- -----------

$19,884,479 $22,107,444
============ ===========

At December 31, 1998, approximately $16.8 million of the Company's
notes payable have scheduled payment terms that may be accelerated based on
established release prices related to future Vacation Ownership Interest sales
or are dependent on the amount of mortgage notes receivable pledged as
collateral. The maturities of these notes are included below based on their
scheduled repayment terms and maturities. Future contractual maturities of notes
payable and capitalized leases at December 31, 1998 are as follows:

1999 3,750,074
2000 2,200,309
2001 6,705,056
2002 2,439,237
2003 2,064,358
Thereafter 4,948,410
-----------
$22,107,444
===========

NOTE 10. NOTES PAYABLE TO AFFILIATES

Notes payable to affiliates consist of the following:

December 31,
-----------------------
1997 1998
---- ----
Note payable, collateralized by LAP partnership
interest, interest at 8%, due through 1999 $ 909,078 $894,078
Notes payable repaid or extinguished in 1998 1,257,022 --
---------- --------

$2,166,100 $894,078
========== ========

Future maturities of notes payable to affiliates at December 31, 1998
are as follows:

1999 $ 894,078
==========

Total interest expense on notes payable to affiliates for the years
ended December 31, 1996, 1997 and 1998 was approximately $158,000, $147,000 and
$132,000, respectively.

NOTE 11. MINORITY INTERESTS

Minority interests consisted primarily of the Company's interests in
LAP, the Arizona limited partnership that owns and operates Los Abrigados.
Through August 1997, the Company held a 78.5% interest in LAP and the 21.5%
minority interest was held by Class B limited partners. In August 1997, the
Company acquired the Class B Limited Partnership Interest in LAP for a purchase
price of $2,920,000 consisting of $820,000 cash, the issuance of 20,000 shares
of the Company's common stock valued at $6.25 per share, and the issuance of
promissory notes in the amounts of $1,300,000 and $675,000 (Notes 9 and 10).

In June 1998, the Company acquired a 51% interest in Timeshare Resale
Brokers, Inc. ("TRBI"), an Arizona company engaged in the resale of Vacation
Ownership Interests on behalf of consumers and others, for which it earns a
commission upon sale. The operation is based in Sedona, Arizona, and while the
Company anticipates the possibility of expanding these operations to additional
vacation destinations and offering a resale multiple listing service to other
resale companies, to date the operations of TRBI have not been material to the
Company.

F-15

ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ALL AMOUNTS AND REFERENCES RELATED TO DECEMBER 31, 1996
AND DECEMBER 31, 1997 ARE UNAUDITED

NOTE 12. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

Operating leases are used to lease office space, equipment and
vehicles. Future minimum lease payments on noncancelable operating leases at
December 31, 1998 are as follows:

1999 316,000
2000 206,000
2001 120,000
2002 14,000
2003 1,000
---------
$ 657,000
=========

Total rent expense for the years ended December 31, 1996, 1997 and 1998
was approximately $443,000, $532,000 and $499,000, respectively.

LEGAL PROCEEDINGS

A dispute has arisen between the general contractor, Summit Builders,
and the Company's wholly owned subsidiary, VCA Tucson Incorporated with respect
to amounts owing under the guaranteed maximum price contract relating to the
construction of VCA-Tucson. Jeffrey C. Stone dba Summit Builders has filed a
demand for arbitration with the American Arbitration Association, claiming
damages of $1,763,085. The Company is contesting the claim vigorously and has
filed a counterclaim in the amount of $2,372,427. The Company has obtained a
payment bond in the amount of $2,645,227 in accordance with the provisions of
Arizona law. In February 1999, the parties entered into a stipulation agreement
under which Summit Builders reduced certain of its claims totaling $197,239, the
Company agreed to claims totaling $226,854, of which $116,714 represents
undisputed change orders previously approved by the Company, and both parties
dismissed fraud claims previously sought. In the event that the arbitration
results in any liability to the Company greater than amounts accrued for the
guaranteed maximum price plus approved change orders, such additional liability
will increase the amount recorded as resort property held for sale for
VCA-Tucson and will be amortized to cost of sales prospectively as Vacation
Ownership Interests are sold.

A dispute has arisen between Bowne of Phoenix, Inc. ("Bowne"), and the
Company regarding amounts owing for printing related to the Company's 1998
follow-on public offering. Bowne and the Company reached agreement on a payment
of $110,000 for such services, which Bowne subsequently sought to change. Bowne
has filed suit in the Superior Court of Arizona seeking total payment of
$154,720 plus interest and attorneys' fees. The Company is vigorously contesting
the claim and believes the matter will be resolved for less than the settlement
previously agreed to by Bowne prior to its institution of litigation and that
the Company will recover its attorneys' fees and other costs of litigation.

Other litigation has arisen in the normal course of the Company's
business, none of which is deemed to be material.

NOTE 13. SHAREHOLDERS' EQUITY

PREFERRED STOCK

At December 31, 1997 and 1998, preferred stock includes 59,845 shares
of the Company's Series A Preferred Stock carried at $598,450. The Series A
Preferred Stock has a par value and liquidation preference of $10 per share and,
commencing July 1, 1996, is entitled to annual dividend payments of $.80 per
share. Dividends were paid of $47,894 in 1997 and $47,998 in 1998. Commencing
January 1, 1993, on a quarterly basis, the Company must contribute $100 per
Vacation Ownership Interest sold in Los Abrigados to a mandatory dividend
sinking fund. At December 31, 1998, notes receivable in the amount of
approximately $372,203 have been designated for the sinking fund. Dividends on
the Company's common stock are subordinated to the Series A dividends and to the
contributions required by the sinking fund.

F-16

ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ALL AMOUNTS AND REFERENCES RELATED TO DECEMBER 31, 1996
AND DECEMBER 31, 1997 ARE UNAUDITED

At December 31, 1997 and 1998, preferred stock also includes 55,000
shares of the Company's Series B Convertible Preferred Stock carried at $55,000.
The Series B Convertible Preferred Stock has a $10 par value and a liquidation
preference of $10 per share, which is subordinate to the Series A liquidation
preference. The Series B Convertible Preferred Stock is not entitled to
dividends. Commencing July 1, 1996, the Series B Convertible Preferred Stock may
be converted into common stock on the basis of two shares of common for five
shares of preferred stock.

Both the Series A and Series B preferred stock may, at the holder's
election, be exchanged for Los Abrigados Vacation Ownership Interests at the
rate of 1,000 shares of stock plus $2,100 cash per Vacation Ownership Interest.
Through September 1996, these shares could also have been exchanged for lodging
certificates under certain conditions.

At December 31, 1997 and 1998, preferred stock also includes 265,623
shares of the Company's Series C Convertible Preferred Stock carried at
$731,441. The Series C Convertible Preferred Stock has a $10 par value and is
entitled to dividends at the rate of $.60 per share per annum when declared by
the Board of Directors. If dividends were not declared in any year prior to the
fifth anniversary of the Genesis merger date (November 1, 1993), such undeclared
dividends ("Dividend Arrearage") could have been converted to "Cumulation
Shares" at the rate of $6 of Dividend Arrearage per Cumulation Share. The Series
C Preferred Stock and the Cumulation Shares have a liquidation preference of $10
per share and $6 per share, respectively, and are subordinate to the liquidation
preferences of the Series A and Series B stock. Commencing November 1, 1994
through October 31, 2004, the Series C Preferred Stock may be converted to ILX
common stock on the basis of one share of common stock for three shares of
Series C Preferred Stock and one share of ILX common stock for each $30 in
Dividend Arrearages. For the years ended December 31, 1996, 1997 and 1998, the
Company recorded the exchange of 13,515, 11,334 and 0 Series C Convertible
shares for 4,505, 3,778 and 0 common shares, respectively. For the years ended
December 31, 1996 and 1997, 702 and 797 common shares were issued to exchanging
shareholders for their 1996 and 1997 dividend arrearage, respectively. ILX may
redeem the Series C Preferred Stock commencing November 1, 1996, at $10 per
share plus payment of all declared but unpaid dividends.

COMMON STOCK

In March 1994, the Company issued warrants for 20,000 shares of ILX
restricted common stock exercisable at a price of $8.125 per share, the
approximate market value at date of issuance. The warrants were issued in
conjunction with the early collection in March 1994, of a note receivable with a
due date of December 31, 1997, in the amount of $900,000. The warrants expired
without being exercised on June 30, 1997.

Effective June 1995, the Company entered into a one-year consulting
agreement for investor relations, broker relations and public relations
services. In exchange for the services to be provided, the Company issued 10,000
shares of restricted common stock in 1995 and 10,000 shares in 1996. The shares
were valued at $5.9375 per share and the cost was recognized over a one-year
period. In addition, during 1995, the Company granted options for 80,000 shares
of common stock at $6.25 per share and 20,000 shares of common stock at $8.125
per share. During 1996, options for 50,000 shares were exercised at $6.25.

In June 1997, the Company entered into an agreement with EVEREN
Securities, Inc. ("ESI") for ESI to act as ILX's exclusive financial advisor,
investment bankers and agent with respect to evaluation of alternatives to
position ILX for long-term growth and to enhance shareholder value. In exchange
for the services, ILX issued 12,000 shares of ILX common stock in August 1997
and issued an additional 12,000 shares in February 1998. The shares issued have
been valued at $56,250 and $75,000, respectively. In accordance with the terms
of the agreement, ILX has registered with the Securities and Exchange Commission
all shares issued.

For the years ended December 31, 1996, 1997 and 1998, the Company
issued 14,500, 17,240 and 28,100 shares of restricted common stock, or treasury
stock, valued at $52,000, $49,387 and $81,227, respectively, to employees in
exchange for services provided.

During 1997 and 1998, the Company purchased 100,100 and 237,000 shares
of its Common Stock for $635,079 and $622,700. During 1997 and 1998, 3,040 and
420 of these shares were re-issued to employees and a consultant and valued at
$19,028 and $1,444.

F-17

ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ALL AMOUNTS AND REFERENCES RELATED TO DECEMBER 31, 1996
AND DECEMBER 31, 1997 ARE UNAUDITED

NOTE 14. COMMON STOCK OFFERING

In April 1998, the Company sold, through a public offering, 1,400,000
shares of its common stock at a price of $6.75; EVEREN Securities, Inc., the
underwriter of the offering, also exercised its overallotment option and
purchased an additional 200,000 shares at a price of $6.75, for total proceeds
of $10,800,000. Proceeds of the offering, net of the costs of the underwriting
(including a 7% underwriting discount, professional fees, printing and
promotional costs totaling $1,405,711), were recorded as common stock.

NOTE 15. EMPLOYEE STOCK OPTION PLANS

The Company has Stock Option Plans pursuant to which options (which
term as used herein includes both incentive stock options and non-statutory
stock options) may be granted to key employees, including officers, whether or
not they are directors, and non-employee directors and consultants, who are
determined by the Board of Directors to have contributed in the past, or who may
be expected to contribute materially in the future, to the success of the
Company. The exercise price of the options granted pursuant to the Plans shall
be not less than the fair market value of the shares on the date of grant. All
outstanding stock options require the holder to have been a director or employee
of the Company for at least one year before exercising the option. Options are
exercisable over a five-year period from date of grant if the optionee was a
ten-percent or more shareholder immediately prior to the granting of the option
and over a ten-year period if the optionee was not a ten-percent shareholder.
The aggregate number of shares that may be issued under the Plans shall not
exceed 200,000 shares. The number of shares available for grant under the Plans
at December 31, 1997 and December 31, 1998 were 139,600 and 46,800,
respectively.

Stock option transactions are summarized as follows:
Outstanding at December 31, 1995 174,600
Options exercised (50,000)
Options canceled (58,600)
--------
Outstanding at December 31, 1996 66,000
Options canceled (5,600)
--------
Outstanding at December 31, 1997 60,400
Options granted 100,000
Options canceled (7,200)
--------
Outstanding at December 31, 1998 153,200
========

The exercise price for options exercised in 1996 was $6.25 per share
for 50,000 shares. The exercise price for options granted in 1998 was $6.75 per
share for 100,000 shares. In 1998 the Company committed to grant options for
5,000 shares to each of two directors at an exercise price of $3.25 per share.
The exercise price for options outstanding at December 31, 1998 ranged from
$6.25 to $8.125 per share. There were no changes in the exercise price of
outstanding options during 1998. Options outstanding at December 31, 1998 have
expiration dates as follows:

YEAR ENDING OPTIONS FOR
DECEMBER 31, SHARES
------------ ------
1999 12,500
2000 10,000
2002 100,000
2004 30,700
-------
153,200
========

The Company applies APB Opinion 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations in accounting for its Plan. Accordingly,
no compensation cost has been recognized for stock options granted under the
Plan. Had compensation cost for the Plan been determined based on the fair value
at the grant dates for awards under the Plan consistent with the alternative
method of SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's

F-18

ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ALL AMOUNTS AND REFERENCES RELATED TO DECEMBER 31, 1996
AND DECEMBER 31, 1997 ARE UNAUDITED

net loss and loss per share would have increased to the proforma amounts
indicated below. The weighted average assumptions used to estimate the fair
value of each option grant, using the Black-Scholes option-pricing model, are
also presented:

Net Income (Loss)
As reported $ 62,264
Proforma (237,036)

Primary and Diluted Loss per share
As reported $ 0.00
Proforma (0.06)

Weighted-Average Assumptions:
Dividend yield $ 0.00
Expected volatility 62.9%
Risk-free interest rate 5.6%
Expected life of options, in years 4

NOTE 16. RELATED PARTY TRANSACTIONS

In addition to the related party transactions described elsewhere in
the financial statements, the Company had the following related party
transactions:

The Company leased from affiliates through October 1, 1996, 41 Vacation
Ownership Interests in the Stonehouse at Los Abrigados at the rate of $1,000 per
Vacation Ownership Interest per year. The Company paid $30,750 per year in lease
payments to affiliates for the year ended December 31, 1996. The affiliates paid
maintenance fees to the Company on an annual basis for their ownership intervals
of $714 per interval in 1996.

In December 1995, in exchange for modification of the terms of note
payables to affiliates, the Company provided the affiliates with the option to
convert, at maturity, the $580,000 note balances into shares of ILX common stock
at the price of $10 per share. In July 1997, the Company issued 36,800 shares of
its common stock in exchange for $230,000 of the balance on this note. In
conjunction with the exchange, 100 Vacation Ownership Interests in Los
Abrigados, which collateralized the note, were released.

In December 1995, the Company sold its Red Rock Collection building,
which houses its Phoenix telemarketing operations, the Sedona Spa warehouse and
administrative offices and certain other ILX administrative offices, to an
affiliate for $500,000. The purchase price consisted of a reduction in the
principal balance of the Company's note payable to the affiliate of $320,000 in
December 1995, and, in January 1996, payment by the affiliate of the $180,000
note collateralized by a deed of trust on the building. The Company leases the
building for a one-year term, with four one-year options to renew through
December 2000. Rent of $48,000 was paid in 1997 and $48,000 in 1998.

In January 1996, an affiliate of the Company agreed to accept a
discounted payment of $60,000 cash and $100,000 in a promissory note as full
satisfaction of a remaining obligation of the Company to such affiliate of
$173,225 in guarantee fees and $44,073 in holdbacks. The note was paid in full
in January 1997.

In September 1996, the Company purchased from an affiliate twenty
Vacation Ownership Interests in the Stonehouse at Los Abrigados for $260,000.
Subsequently, the affiliate purchased 52 Vacation Ownership Interests in Kohl's
Ranch for $260,000.

In September 1998, the Company entered into an agreement with an
affiliate to pay off at a $200,000 discount a promissory note with a principal
balance before the discount of $998,349. The $200,000 discount has been recorded
as a capital transaction.

F-19

ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ALL AMOUNTS AND REFERENCES RELATED TO DECEMBER 31, 1996
AND DECEMBER 31, 1997 ARE UNAUDITED

NOTE 17. CAPITAL LEASES

Leased assets included in resort property held for Vacation Ownership
Interest sales and property and equipment totaled $1,132,033 and $2,451,075 (net
of accumulated amortization of $456,032 and $936,929) at December 31, 1997 and
1998, respectively. The leases expire through 2002. Future minimum lease
payments at December 31, 1998 are as follows:

1999 $ 840,849
2000 654,106
2001 280,427
2002 19,965
----------
Total 1,795,347
Less: Amounts representing interest (281,201)
----------
Net minimum lease payments $1,514,146
==========

NOTE 18. OTHER

SAN CARLOS, MEXICO

In June 1998, the Company acquired 1,500 one-week, 25-year right-to-use
Vacation Ownership Interests to be constructed on land adjacent to a full
service resort in San Carlos, Mexico. Such interests will be contributed to the
Company's Premiere Vacation Club in exchange for participation in the profits of
Premiere Vacation Club as provided in the agreement.

SEDONA WORLDWIDE SPIN-OFF

The Company has announced its intention to spin-off its 80% ownership
in Sedona Worldwide Incorporated to the shareholders of ILX and has filed a
Registration Statement on Form 10-SB for the proposed spin-off with the
Securities and Exchange Commission. Sedona Worldwide Incorporated has become a
reporting company (as defined by the SEC) as a part of the process but the
Registration Statement has not been approved as of the date of this filing. The
spin-off will be completed following the effectiveness of the Form 10-SB.

NOTE 19. CONCENTRATIONS OF RISK

CREDIT RISK

The Company is exposed to on-balance sheet credit risk related to its
notes receivable. The Company is exposed to off-balance sheet credit risk
related to loans sold under recourse provisions.

The Company offers financing to the buyers of Vacation Ownership
Interests at the Company's resorts. These buyers make a down payment of at least
10% of the purchase price and deliver a promissory note to the Company for the
balance; the promissory notes generally bear interest at a fixed rate, are
payable over a seven-year period and are collateralized by a first mortgage on
the Vacation Ownership Interest. The Company bears the risk of defaults on these
promissory notes. The Company performs credit evaluations prior to Vacation
Ownership Interest sales. The Vacation Ownership Interest deed of trust serves
as collateral on the note receivable. If a buyer of a Vacation Ownership
Interest defaults, the Company generally must foreclose on the interest and
attempt to resell it; the associated marketing, selling and administrative costs
from the original sale are not recovered; and such costs must be incurred again
to resell the Vacation Ownership Interest.

INTEREST RATE RISK

Because the Company's indebtedness bears interest at variable rates and
the Company's customer receivables bear interest at fixed rates, increases in
interest rates could cause the rate on the Company's borrowings to exceed the
rate at which the Company provides financing to its customers. The Company does
not engage in interest rate hedging transactions. Therefore, any increase in

F-20

ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ALL AMOUNTS AND REFERENCES RELATED TO DECEMBER 31, 1996
AND DECEMBER 31, 1997 ARE UNAUDITED

interest rates, particularly if sustained, could have a material adverse effect
on the Company's results of operations, cash flows and financial position.

AVAILABILITY OF FUNDING SOURCES

The Company funds substantially all of the notes receivable, resort
property held for Vacation Ownership Interest sales and land inventory which it
originates or purchases with sales of consumer notes, borrowings through its
financing facilities and internally generated funds. Borrowings are in turn
repaid with the proceeds received by the Company from sales of notes receivable
or from repayments by consumers of such notes receivable. To the extent that the
Company is not successful in maintaining or replacing existing financings, it
would have to curtail its operations or sell assets, thereby having a material
adverse effect on the Company's results of operations, cash flows and financial
condition.

GEOGRAPHIC CONCENTRATION

The Company's notes receivable are primarily originated in Arizona and,
to a lesser extent, Indiana. The risk inherent in such concentrations is
dependent upon regional and general economic stability that affects property
values and the financial stability of the borrowers. The Company's resort
property held for Vacation Ownership Interest sales is also concentrated in
these states. The risk inherent in such concentrations is in the continued
popularity of the resort destinations, which affects the marketability of the
Company's products and the collection of notes receivable.

NOTES 20. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

SFAS 107, Disclosures about Fair Value of Financial Instruments,
requires that the Company disclose estimated fair values for its financial
instruments. The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

CASH AND CASH EQUIVALENTS

The carrying amount reported in the balance sheet for cash and cash
equivalents approximates their fair value because of the short maturity of these
instruments.

NOTES RECEIVABLE

The carrying amount reported in the balance sheet for notes receivable
approximates its fair value because the interest rates on the portfolio of notes
receivable approximate current interest rates to be received on similar current
notes receivable.

NOTES PAYABLE

The carrying amount reported in the balance sheet for notes payable
approximates its fair value because the interest rates on these instruments
approximate current interest rates charged on similar current borrowings.

NOTES PAYABLE TO AFFILIATES

The fair value of the notes payable to affiliates is not determinable
since these financial instruments are not readily marketable and are payable to
affiliates.

NOTE 21. SUBSEQUENT EVENTS

On February 8, 1999, the Company engaged Hansen, Barnett & Maxwell, a
professional corporation ("HB&M"), as its principal accountant to audit ILX's
financial statements for the year ended December 31, 1998. Prior to its
engagement, ILX had not consulted HB&M with respect to the application of
accounting principles to a specified transaction or any matter that was the
subject of a disagreement or a reportable event (as described in Item
301(a)(1)(v) of Regulation S-K).

F-21

ILX RESORTS INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ALL AMOUNTS AND REFERENCES RELATED TO DECEMBER 31, 1996
AND DECEMBER 31, 1997 ARE UNAUDITED

NOTE 22. QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly financial information is presented in the following summary.

1997
THREE MONTHS ENDED
--------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------

Revenues $7,783,805 $8,942,588 $9,997,859 $9,686,494
Operating income 714,647 1,271,352 1,335,128 1,399,022
Net income 106,204 422,823 457,019 681,827
Net income per share - basic .03 .15 .16 .25
Net income per share - diluted .03 .15 .16 .24

1998
THREE MONTHS ENDED
--------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
Revenues $8,527,163 $9,241,602 $9,586,592 $9,389,836
Operating income 894,340 1,122,728 413,771 (252,207)
Net income 232,825 432,110 (60,340) (542,331)
Net income (loss) per share - basic .08 .10 (.02) (.14)
Net income (loss) per share - diluted .08 .10 (.02) (.13)

The 1997 and 1998 net income (loss) per share does not equal the
summation of the quarters due to rounding and the weighting of average shares.

F-22

EXHIBITS

TO

1998 FORM 10-K

ILX RESORTS INCORPORATED

EXHIBIT INDEX

EXHIBIT PAGE NUMBERS OR
NUMBERS DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------

1 Form of Underwriting Agreement Incorporated by reference to
Registration Statement on Form
S-1 No. 333-45403

3(i).1 Articles of Incorporation of International Leisure Incorporated by reference to
Enterprises Incorporated (filed October 8, 1986) Registration Statement on Form
S-1 No. 33-16122

3(i).2 Articles of Amendment to the Articles of Incorporated by reference to
Incorporation of International Leisure Enterprises 1990 10-K
Incorporated (filed August 31, 1987)

3(i).3 Articles of Amendment to the Articles of Incorporated by reference to
Incorporation of International Leisure Enterprises 1994 10-K/A-3
Incorporated (filed October 19, 1987)

3(i).4 Articles of Amendment to the Articles of Incorporated by reference to
Incorporation of International Leisure Enterprises 1994 10-K/A-3
Incorporated (filed May 3, 1990)

3(i).5 Articles of Amendment to the Articles of Incorporated by reference to
Incorporation of International Leisure Enterprises 1993 10-K
Incorporated (Name changed by this Amendment to
ILX Incorporated), (filed June 28, 1993)

3(i).6 Certificate of Amendment to Articles of Incorporated by reference to
Incorporation, filed January 12, 1998 Registration Statement on Form
S-1 No. 333-45403

3(i).7 Articles of Correction, filed January 12, 1998, to Incorporated by reference to
correct Certificate of Amendment to Articles of Registration Statement on Form
Incorporation, dated January 12, 1998 S-1 No. 333-45403

3(i).8 Certificate of Designation, Preferences, Rights, Incorporated by reference to
and Limitations of Series A Preferred Stock, 1991 10-K
$10.00 par value of International Leisure
Enterprises Incorporated, filed September 5, 1991

3(i).9 Certificate of Designation, Preferences, Rights, Incorporated by reference to
and Limitations of Series B Preferred Stock, 1991 10-K
$10.00 par value of International Leisure
Enterprises Incorporated, filed September 5, 1991

3(ii).10 Certificate of Designation of Series C Preferred Incorporated by reference to
Stock, filed April 30, 1993 1993 10-K

3.(ii) Amended and Restated Bylaws of International Incorporated by reference to
Leisure Enterprises Incorporated, dated October 1990 10-K
26, 1987

4 Form of Common Stock Certificate Incorporated by reference to
Form 8-A, filed February 4,
1998

10.1 1992 Stock Option Plan Incorporated by reference to
1992 10-K

10.2 1995 Stock Option Plan Incorporated by reference to
1995 10-K

EXHIBIT PAGE NUMBERS OR
NUMBERS DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------

10.3 Agreement and Plan of Merger among ILE Acquisition Incorporated by reference to
Corporation, International Leisure Enterprises 1992 10-K
Incorporated and Genesis Investment Group, Inc.,
dated March 15, 1993

10.4 First Amendment to Agreement and Plan of Merger Incorporated by reference to
between ILE Acquisition Corporation, International 1993 10-K
Leisure Enterprises Incorporated and Genesis
Investment Group, Inc., dated April 22, 1993

10.5 Agreement among ILX Incorporated, Martori Incorporated by reference to
Enterprises Incorporated, Los Abrigados Partners 1995 10-K
Limited Partnership, Red Rock Collection
Incorporated, Edward John Martori and Joseph P.
Martori as Trustee for Cynthia J. Polich
Irrevocable Trust dated December 29, 1995

10.6 Lease Agreement between Edward John Martori and Incorporated by reference to
Red Rock Collection Incorporated, dated December 1995 10-K
29, 1995

10.7 First Amended Certificate of Limited Partnership Incorporated by reference to
and Amended Agreement of Los Abrigados Partners 1991 10-K
Limited Partnership, dated September 9, 1991

10.8 Certificate of Amendment of Limited Partnership Incorporated by reference to
for Los Abrigados Partners Limited Partnership, 1994 10-K/A-3
dated November 11, 1993

10.9 First Amendment to Amended Agreement of Los Incorporated by reference to
Abrigados Partners Limited Partnership, dated 1995 10-K
February 9, 1996

10.10 Deed of Trust and Assignment of Rents to Cynthia Incorporated by reference to
J. Polich Irrevocable Trust and Edward John 9/30/95 10-Q/A
Martori by Los Abrigados Partners Limited
Partnership, dated July 27, 1995

10.11 Real Estate Purchase Contract between Indian Wells Incorporated by reference to
Partners, Ltd., Los Abrigados Partners Limited 1992 10-K
Partnership and International Leisure Enterprises
Incorporated, dated December 18, 1992

10.12 Option Agreement between Indian Wells Partners, Incorporated by reference to
Ltd. and Martori Enterprises Incorporated, dated 1994 10-K/A-3
March 31, 1994

10.13 Assignment of Option by Martori Enterprises Incorporated by reference to
Incorporated to Genesis Investment Group, Inc., 1994 10-K/A-3
dated September 15, 1994

10.14 Lease Agreement between Indian Wells Partners, Incorporated by reference to
Ltd. and Los Abrigados Partners Limited 1992 10-K
Partnership, dated December 21, 1992

10.15 Second Amendment to Lease Agreement between Indian Incorporated by reference to
Wells Partners, Ltd. and Los Abrigados Partners 1994 10-K/A-3
Limited Partnership, dated March 31, 1994

10.16 First Amended Certificate of Limited Partnership Incorporated by reference to
and Amended Agreement of The Sedona Real Estate 1995 10-K
Limited Partnership #1, dated March 1, 1996
(Lomacasi Resort)

10.17 Letter Agreement dated February 27, 1996 (Lomacasi Incorporated by reference to
Resort) 1995 10-K

EXHIBIT PAGE NUMBERS OR
NUMBERS DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------

10.18 Consulting Agreement between Investor Resource Incorporated by reference to
Services, Inc. and ILX Incorporated, dated January 1/7/97 8-K
1, 1997

10.19 Consulting Agreement between Universal Solutions, Incorporated by reference to
Inc. and ILX Incorporated Registration Statement on Form
S-1 No. 333-45403

10.20 Secured Promissory Note ($770,000) by Los Incorporated by reference to
Abrigados Partners Limited Partnership to Martori Registration Statement on Form
Enterprises, Inc. dated August 31, 1992 S-1 No. 333-45403

10.21 Assignment of Deeds of Trust to Martori Incorporated by reference to
Enterprises Inc. by Los Abrigados Partners Limited Form 8-K, filed August 22,
Partnership, dated August 31, 1992 1997

10.22 Agreement for Transfer of Limited Partnership Incorporated by reference to
Interest between ILX, Inc and Martori Enterprises Form 8-K, filed August 22,
Inc., dated August 8, 1997 1997

10.23 Installment Promissory Note ($1,300,000) by ILX, Incorporated by reference to
Inc. to Martori Enterprises Inc., dated August 8, Form 8-K, filed August 22,
1997 1997

10.24 Security Agreement between ILX, Inc. and Martori Incorporated by reference to
Enterprises Inc., dated August 8, 1997 Form 8-K, filed August 22,
1997

10.25 Amended and Restated Promissory Note ($909,078) by Incorporated by reference to
ILX, Inc. to Edward J. Martori, dated January 1, Registration Statement on Form
1996 S-1 No. 333-45403

10.26 Promissory Note ($250,000) by Los Abrigados Incorporated by reference to
Partners Limited Partnership and ILX, Inc. to Registration Statement on Form
Joseph P. Martori as Trustee for the Cynthia J. S-1 No. 333-45403
Polich Irrevocable Trust, dated January 1, 1996

10.27 Agreement for Transfer of Limited Partnership Incorporated by reference to
Interest by ILX, Inc. and Alan R. Mishkin, dated Form 8-K, filed August 22,
August 29, 1997 1997

10.28 Installment Promissory Note ($675,000) by ILX, Incorporated by reference to
Inc. to Alan R. Mishkin dated September 24, 1997 Form 8-K, filed August 22,
1997

10.29 Security (Pledge) Agreement between ILX, Inc. and Incorporated by reference to
Alan R. Mishkin, dated September 24, 1997 Form 8-K, filed August 22,
1997

10.30 Form of Employment Agreement among ILX Resorts Incorporated by reference to
Incorporated and each of Joseph Martori, Nancy Registration Statement on Form
Stone and Edward Zielinski S-1 No. 333-45403

10.31 Letter Agreement between Texas Capital Securities Incorporated by reference to
and ILX Incorporated, dated January 7, 1997 Registration Statement on Form
Incorporated by reference to 1/1/97 8-K S-1 No. 333-45403

EXHIBIT PAGE NUMBERS OR
NUMBERS DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------

10.32 Assumption Agreement among Investor Resource Incorporated by reference to
Services, Inc., ILX, Inc., and Martori Enterprises Form 8-K, filed May 20, 1997
Incorporated, dated January 1, 1997

10.33 Assumption Agreement among Texas Capital Incorporated by reference to
Securities, ILX, Inc. and Martori Enterprises, Form 8-K, filed May 20, 1997
Inc., dated January 7, 1997

10.34 Stock Purchase Agreement between Genesis Incorporated by reference to
Investment Group, Inc. and Goodyear 93, L.L.C., Registration Statement on Form
dated December 5, 1997 S-1 No. 333-45403

10.35 Option Agreement between Texas Capital Securities Incorporated by reference to
and ILX Inc., dated January 7, 1997 Form 8-K, filed January 7,
1997

10.36 Financing Agreement between Martori Enterprises Incorporated by reference to
Incorporated and International Leisure Enterprises 1992 10-K
Incorporated, dated January 13, 1992

10.37 Financing Agreement between Martori Enterprises Incorporated by reference to
Incorporated and Los Abrigados Partners Limited 1991 10-K
Partnership, dated August 31, 1992

10.38 Secured Promissory Note and Security Agreement and Incorporated by reference to
Financing Agreement between Martori Enterprises 1993 10-K
Incorporated and International Leisure Enterprises
Incorporated, dated June 11, 1993

10.39 Secured Line of Credit Lending Agreement between Incorporated by reference to
Litchfield Financial Corporation and ILX Resorts 6/30/98 10Q
Incorporated, Los Abrigados Partners Limited
Partnership and Premiere Development Incorporated
dated as of June 12, 1998

10.40 Secured Line of Credit Promissory Note between Incorporated by reference to
Litchfield Financial Corporation and ILX Resorts 6/30/98 10Q
Incorporated, Los Abrigados Partners Limited
Partnership and Premiere Development Incorporated
dated as of June 12, 1998

10.41 Business Agreement among ILX Resorts Incorporated, Incorporated by reference to
Premiere Vacation Club and Premiere Development 6/30/98 10Q
Incorporated and Treasures of the Sea of Cortez,
Promotura de Inversion Turistica, Immobiliaria y
Hotelera Los Algodones and Immobiliaria Cerro
Pelon dated as of June 8, 1998

10.42 Amended and Restated Secured Line of Credit Incorporated by reference to
Lending Agreement between ILX Resorts 9/30/98 10Q
Incorporated, Los Abrigados Partners Limited
Partnership, ILE Sedona Incorporated, VCA Tucson
Incorporated, VCA South Bend Incorporated,
Premiere Development Incorporated and Litchfield
Financial Corporation dated as of September 17,
1998

10.43 Agreement for Sale and Transfer of Promissory Note Incorporated by reference to
between ILX Resorts Incorporated and Martori 9/30/98 10Q
Enterprises Incorporated dated as of September 29,
1998

EXHIBIT PAGE NUMBERS OR
NUMBERS DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------

10.44 Contract of Sale of Timeshare Receivables with Filed herewith
Recourse between Resort Funding, Inc. and Premiere
Development Incorporated dated as of March 19,
1999

10.45 Guaranty Agreement between ILX Resorts Filed herewith
Incorporated and Resort Funding, Inc. dated as of
March 19, 1999

10.46 Rider to Contract between Resort Funding, Inc. and Filed herewith
Premiere Development Incorporated dated March 24,
1999 to supplement the Contract of Sale of
Timeshare Receivables with Recourse dated as of
March 19, 1999

10.47 List of Subsidiaries of ILX Resorts Incorporated Filed herewith

27.1 Financial Data Schedule - Year Ended December 31, 1998 Filed herewith